A Longitudinal Analysis of Corporate Payout Policies
36 Pages Posted: 8 Nov 1999
Date Written: October 1999
Abstract
In this paper, I conduct a longitudinal analysis of corporate payout policies that accounts for the dynamic nature of these decisions and for the interaction among investment decisions and payout policies. The estimation is done with a VAR model of investment opportunities, profitability, total payout-dividends plus share repurchases, and the split of the total payout between dividends and share repurchases. I control for changes in the legal treatment of share repurchase in 1982 and for changes in the relative taxation of dividends and of capital gains. I find that * An increase in the taxation of capital gains relative to dividends causes a shift in the split of the total corporate payout away from share repurchases and towards dividends * Corporate investment decisions determine payout policies and not the other way around * Unexpected increases in corporate payout are associated with long-term subsequent increases in profitability * The information content of an unexpected increase in dividends is stronger than an equal-size unexpected increase in share repurchases * Earnings better measure firm profitability than cash flows in the determination of corporate payout policies
JEL Classification: G1, G3
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?
By Eugene F. Fama and Kenneth R. French
-
Dividends, Share Repurchases, and the Substitution Hypothesis
By Gustavo Grullon and Roni Michaely
-
Payout Policy in the 21st Century
By Alon Brav, John R. Graham, ...
-
Payout Policy in the 21st Century
By Alon Brav, Campbell R. Harvey, ...
-
Financial Flexibility and the Choice between Dividends and Stock Repurchases
By Clifford P. Stephens, Murali Jagannathan, ...
-
By Roni Michaely and Franklin Allen
-
By Joan Farre-mensa, Roni Michaely, ...
-
Payout Policy in the 21th Century: The Data
By Alon Brav, Campbell R. Harvey, ...
-
A Catering Theory of Dividends
By Malcolm P. Baker and Jeffrey Wurgler
-
A Catering Theory of Dividends
By Malcolm P. Baker and Jeffrey Wurgler