Corporate Payout, Cash Retention, and the Supply of Credit: Evidence from the 2008-09 Credit Crisis

45 Pages Posted: 23 Apr 2013

See all articles by Barbara A. Bliss

Barbara A. Bliss

University of San Diego

Yingmei Cheng

Florida State University - College of Business

David J. Denis

University of Pittsburgh

Date Written: April 22, 2013

Abstract

Using the financial crisis as a natural experiment, we analyze the extent to which firms adjust financial policies on the margin in response to a credit supply shock. We document significant reductions in corporate payouts – both dividends and (to a larger extent) share repurchases - during the 2008-2009 financial crisis. Payout reductions are more likely in firms with higher leverage, more valuable growth options, and lower cash balances – i.e., those more susceptible to the negative consequences of a credit supply shock. Moreover, firms appear to use the proceeds from the reduction in payout to maintain cash levels and to fund investment. These findings are consistent with the view that an exogenous shock to the supply of credit during the financial crisis increased the marginal benefit of cash retention, leading some firms to turn to payout reductions as a substitute form of financing.

Keywords: Cash, Corporate investment, Payout policy, Crisis, Financing constraints

JEL Classification: G01, G31, G35

Suggested Citation

Bliss, Barbara A. and Cheng, Yingmei and Denis, David J., Corporate Payout, Cash Retention, and the Supply of Credit: Evidence from the 2008-09 Credit Crisis (April 22, 2013). Available at SSRN: https://ssrn.com/abstract=2255211 or http://dx.doi.org/10.2139/ssrn.2255211

Barbara A. Bliss (Contact Author)

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Yingmei Cheng

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-7869 (Phone)

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

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