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Cost management and corporate payout decisions

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  • Joanna Golden

    (University of Memphis)

  • Kenneth Zheng

    (University of Wyoming)

Abstract

We investigate the relationship between cost management and dividend payout decisions. Prior studies document that firms with consistent earnings or transitory losses tend to pay out dividends (Skinner and Soltes in Rev Acc Stud 16:1–28, 2011). Ham et al. (J Financ Econ 136: 547–570, 2020) suggest that dividends contain information about the level of permanent earnings. In addition, sales changes influence cost management because cost management has a direct effect on earnings. Prior research shows that when a firm experiences a temporary sales decline, managers are resistant to cutting resources (as quickly as they increase resources when sales grow) due to the expectation that sales will rebound (Anderson et al. J Account Res 41:47–63, 2003). We find that cost stickiness is positively associated with dividend yield. Furthermore, we show that this positive association is concentrated in firms with: (a) selling, general, and administration (SG&A) expenses that creates higher future value; (b) higher ability managers; and (c) no successive sales decreases.

Suggested Citation

  • Joanna Golden & Kenneth Zheng, 2022. "Cost management and corporate payout decisions," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 911-938, April.
    • Handle: RePEc:kap:rqfnac:v:58:y:2022:i:3:d:10.1007_s11156-021-01013-z
    DOI: 10.1007/s11156-021-01013-z
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    More about this item

    Keywords

    Corporate payout; Dividend yield; Cost stickiness; Future value creation; Managerial ability;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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