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Corporate payout, cash retention, and the supply of credit: Evidence from the 2008–2009 credit crisis

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  • Bliss, Barbara A.
  • Cheng, Yingmei
  • Denis, David J.

Abstract

We document significant reductions in corporate payouts-both dividends and (to a larger extent) share repurchases-during the 2008–2009 financial crisis. Payout reductions are more likely in firms with higher leverage, more valuable growth options, and lower cash balances, i.e., those more susceptible to the negative consequences of an external financing shock. Moreover, firms appear to use the proceeds from the reduction in payout to maintain cash levels and to fund investment. These findings are consistent with the view that a shock to the supply of credit (net of demand effects) during the financial crisis increased the marginal benefit of cash retention, leading some firms to turn to payout reductions as a substitute form of financing.

Suggested Citation

  • Bliss, Barbara A. & Cheng, Yingmei & Denis, David J., 2015. "Corporate payout, cash retention, and the supply of credit: Evidence from the 2008–2009 credit crisis," Journal of Financial Economics, Elsevier, vol. 115(3), pages 521-540.
    • Handle: RePEc:eee:jfinec:v:115:y:2015:i:3:p:521-540
    DOI: 10.1016/j.jfineco.2014.10.013
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    More about this item

    Keywords

    Cash; Corporate investment; Payout policy; Crisis; Financing constraints;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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