Financing Payouts

80 Pages Posted: 9 Dec 2014 Last revised: 22 Feb 2018

See all articles by Joan Farre-Mensa

Joan Farre-Mensa

University of Illinois at Chicago - Department of Finance

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Martin C. Schmalz

University of Oxford - Finance; CEPR; CESifo; European Corporate Governance Institute (ECGI)

Date Written: February 21, 2018

Abstract

We study the extent to which firms rely on the capital markets to fund their payouts. We find that 42% of firms that pay out capital also initiate debt or equity issues in the same year, resulting in 32% of aggregate payouts being externally financed. Most firms that simultaneously raise and distribute capital do not generate enough free cash flow to fund their payouts internally. Firms devote more external capital to finance share repurchases than to avoid dividend cuts. Payouts financed by debt, which allow firms to jointly manage their capital structure and liquidity, are by far the most common.

Keywords: payout policy, financing decisions, debt issues, equity issues, capital structure

JEL Classification: G35; G32

Suggested Citation

Farre-Mensa, Joan and Michaely, Roni and Schmalz, Martin C., Financing Payouts (February 21, 2018). Ross School of Business Paper No. 1263. Available at SSRN: https://ssrn.com/abstract=2535675 or http://dx.doi.org/10.2139/ssrn.2535675

Joan Farre-Mensa (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Martin C. Schmalz

University of Oxford - Finance ( email )

United States

CEPR ( email )

London
United Kingdom

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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