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Financial Flexibility, Performance, and the Corporate Payout Choice

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  • Erik Lie

    (School of Business Administration, College of William and Mary)

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    Abstract

    This study examines the effect of financial flexibility and the level and certainty of operating performance on the choice to change dividends, pay special dividends, and repurchase shares. Firms that increase payouts have excess financial flexibility and exhibit positive concurrent income shocks and decreases in income volatility, but there is limited evidence of subsequent performance improvements. The results are opposite for firms that cut dividends. Thus, the decision to alter payout levels appears to convey information about contemporaneous income and changes in operating risk.

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    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB780605
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 78 (2005)
    Issue (Month): 6 (November)
    Pages: 2179-2202

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    Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:6:p:2179-2202

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Nan-Ting Kuo, 2013. "Dividend tax signaling and the pricing of future earnings: a case of taxable stock dividends," Review of Quantitative Finance and Accounting, Springer, vol. 40(3), pages 539-570, April.
    2. Luís Krug Pacheco & Clara Raposo, 2009. "THE CAPITAL and CASH FLOW SOURCES and USES of INITIAL STOCK REPURCHASE FIRMS," Working Papers de Gestão (Management Working Papers) 07, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
    3. Kao, Lanfeng & Chen, Anlin, 2013. "How product market competition affects dividend payments in a weak investor protection economy: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 21-39.
    4. Luís Krug Pacheco & Clara Raposo, 2009. "ON the TIMING of INITIAL STOCK REPURCHASES," Working Papers de Gestão (Management Working Papers) 06, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
    5. Blau, Benjamin M. & Fuller, Kathleen P., 2008. "Flexibility and dividends," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 133-152, April.
    6. Jiang, Zhan & Kim, Kenneth A. & Lie, Erik & Yang, Sean, 2013. "Share repurchases, catering, and dividend substitution," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 36-50.

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