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Dynamic corporate payout smoothing: A structural vector autoregressive model

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  • Renzi, Antonio
  • Taragoni, Pietro
  • Vagnani, Gianluca

Abstract

We utilize a structural vector autoregressive (SVAR) model and a variance decomposition methodology to augment the existing cross-sectional studies on corporate payout smoothing. Initially, we incorporate the net income shocks within a multi-equation framework using panel data, thus capturing the dynamic interplay between volatility in net income and various smoothing mechanisms, specifically debt and investments. Subsequently, under dynamic models and diverse structural shocks, we employ impulse response functions to elucidate the interdependencies of smoothing channels over time. Our model is implemented on a sample of organizations operating within U.S. financial markets. We compare our findings with predictions from cross-sectional corporate payout smoothing, offering robust empirical evidence of the dynamic interaction between debt and investments as smoothing channels within the context of the net income–payout variance relationship.

Suggested Citation

  • Renzi, Antonio & Taragoni, Pietro & Vagnani, Gianluca, 2025. "Dynamic corporate payout smoothing: A structural vector autoregressive model," International Review of Financial Analysis, Elsevier, vol. 107(C).
    • Handle: RePEc:eee:finana:v:107:y:2025:i:c:s105752192500657x
    DOI: 10.1016/j.irfa.2025.104570
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    JEL classification:

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

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