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Leverage target and payout policy

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  • Sharier Azim Khan

Abstract

Depending on whether the existing debt is below or above target debt level, some firms are more willing to raise debt (if needed) than others. In this article, I show that firms are more likely to both increase and smooth dividends when they have below‐target debt after controlling for access to debt. Additionally, I show that when firms have below‐target debt, they use a greater fraction of proceeds from net debt issues to finance dividends. I obtain similar results when repeating the tests with total payouts (dividends plus repurchases) instead of dividends only.

Suggested Citation

  • Sharier Azim Khan, 2021. "Leverage target and payout policy," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(1), pages 53-79, April.
    • Handle: RePEc:bla:jfnres:v:44:y:2021:i:1:p:53-79
    DOI: 10.1111/jfir.12234
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    References listed on IDEAS

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