Payout Policy in the 21st Century
Duke University - Fuqua School of Business
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative
John R. Graham
Duke University; National Bureau of Economic Research (NBER)
Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)
Tuck Contemporary Corporate Finance Issues III Conference Paper
We survey 384 financial executives and conduct in depth interviews with an additional 23 to determine the factors that drive dividend and share repurchase decisions. Our findings indicate that maintaining the dividend level is on par with investment decisions, while repurchases are made out of the residual cash flow after investment spending. Perceived stability of future earnings still affects dividend policy as in Lintner (1956). However, fifty years later, we find that the link between dividends and earnings has weakened. Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase EPS. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele. In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role. This is the final working paper version of our 2005 publication in the Journal of Financial Economics.
Number of Pages in PDF File: 43
Keywords: Payout, Dividend policy, Share repurchases, Lintner model
JEL Classification: G35, G32, G34
Date posted: August 3, 2004
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