A Longitudinal Analysis of Corporate Payout Policies

36 Pages Posted: 8 Nov 1999

See all articles by Oded Sarig

Oded Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship; University of Pennsylvania - The Wharton School

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

Sarig, Oded H., A Longitudinal Analysis of Corporate Payout Policies (October 1999). Available at SSRN: https://ssrn.com/abstract=190808 or http://dx.doi.org/10.2139/ssrn.190808

Oded H. Sarig (Contact Author)

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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