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Paying dividends: Cash or credit?

Author

Listed:
  • Chris M. Lawrey

    (University of South Alabama)

  • Kathleen P. Fuller

    (University of Mississippi)

  • Brandon C. L. Morris

    (Wright State University)

Abstract

This paper examines to what extent firms utilize lines of credit to fund cash dividends. We find that higher dividend payouts are related to higher liquidity and that dividend-paying firms who experience cash shortages will utilize credit lines to continue dividend payments. Additionally, we show that credit lines are a permanent component of dividend-paying firms’ capital structure. Our sample statistics indicate that dividend-paying firms are considerably different than non-dividend-paying firms. Dividend payers tend to be more liquid despite having less cash, have smaller credit line balances, have higher market capitalizations, have less long-term debt, are more profitable, and spend less on capital investments. We conclude that access to credit lines is an important component of dividend-paying firms’ capital structure while the level of cash is not.

Suggested Citation

  • Chris M. Lawrey & Kathleen P. Fuller & Brandon C. L. Morris, 2020. "Paying dividends: Cash or credit?," Journal of Asset Management, Palgrave Macmillan, vol. 21(6), pages 513-523, October.
    • Handle: RePEc:pal:assmgt:v:21:y:2020:i:6:d:10.1057_s41260-020-00180-3
    DOI: 10.1057/s41260-020-00180-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Working capital; Credit lines; Dividend policy; Liquidity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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