Financial Constraints and Dividend Policy

33 Pages Posted: 29 Jun 2013 Last revised: 21 Aug 2014

See all articles by Shams Pathan

Shams Pathan

affiliation not provided to SSRN

Robert W. Faff

University of Queensland

Carlos Fernandez

Oviedo University - School of Economics and Business

Nicholas Masters

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2014

Abstract

Using a sample of US listed firms over the 1989-2012 period, we find that financially constrained dividend increasing firms experience superior short-run abnormal stock returns, but suffer worse operating performance compared to similar unconstrained firms. More specifically, constrained firms in more competitive industries realize poorer long-run and operating performance. Likewise, constrained firms that increase dividends during the financial crisis also deliver post-dividend-increase inferior long-run return than do unconstrained firms. We also find evidence that constrained firms show worse stock market reaction to new equity issue announcements following dividend increase but display a positive market response if they potentially have high investment growth opportunities. Our results are robust to alternative financial constraint proxies and abnormal return measures.

Keywords: Dividends, Financial constraints, Seasoned equity issues

JEL Classification: G30, G32, G34, L22, K22

Suggested Citation

Pathan, Shams and Faff, Robert W. and Fernandez, Carlos and Masters, Nicholas, Financial Constraints and Dividend Policy (August 20, 2014). Available at SSRN: https://ssrn.com/abstract=2286962 or http://dx.doi.org/10.2139/ssrn.2286962

Shams Pathan (Contact Author)

affiliation not provided to SSRN

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Carlos Fernandez

Oviedo University - School of Economics and Business ( email )

Campus del Cristo, s/n
Oviedo, Asturias 33071
Spain

Nicholas Masters

Independent ( email )

No Address Available

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