Abstract

http://ssrn.com/abstract=199431
 
 

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Testing Tradeoff and Pecking Order Predictions About Dividends and Debt


Eugene F. Fama


University of Chicago - Finance

Kenneth R. French


Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

December 2000

CRSP Working Paper No. 506

Abstract:     
Confirming predictions shared by the tradeoff and pecking order models, more profitable firms and firms with fewer investments have higher dividend payouts. Confirming the pecking order model but contradicting the tradeoff model, more profitable firms are less levered. Firms with more investments have less market leverage, which is consistent with the tradeoff 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 investment and earnings is mostly absorbed by debt.

Number of Pages in PDF File: 46

JEL Classification: G31, G32, G35

working papers series


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Date posted: December 15, 1999  

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Testing Tradeoff and Pecking Order Predictions About Dividends and Debt (December 2000). CRSP Working Paper No. 506. Available at SSRN: http://ssrn.com/abstract=199431 or http://dx.doi.org/10.2139/ssrn.199431

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
Kenneth R. French
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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