Testing Trade-Off and Pecking Order Predictions About Dividends and Debt
AbstractConfirming predictions shared by the trade-off and pecking order models, more profitable firms and firms with fewer investments have higher dividend payouts. Confirming the pecking order model but contradicting the trade-off model, more profitable firms are less levered. Firms with more investments have less market leverage, which is consistent with the trade-off model and a complex pecking order model. Firms with more investments have lower long-term dividend payouts, but dividends do not vary to accommodate short-term variation in investment. As the pecking order model predicts, short-term variation in [oplus ]investment and earnings is mostly absorbed by debt. Copyright 2002, Oxford University Press.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal Review of Financial Studies.
Volume (Year): 15 (2002)
Issue (Month): 1 (March)
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- Eugene F. Fama & Kenneth R. French, . "Testing Tradeoff and Pecking Order Predictions about Dividends and Debt.”," CRSP working papers 506, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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