Financing Payouts
Journal of Financial and Quantitative Analysis, Forthcoming
82 Pages Posted: 9 Dec 2014 Last revised: 20 Feb 2024
Date Written: February 15, 2024
Abstract
We find that 43% of firms that make payouts also raise capital during the same year, resulting in 31% of aggregate payouts being externally financed, primarily with debt. Most financed payouts cannot be explained by payout-smoothing in response to volatile earnings or investment—rather, they are the result of firms persistently setting payouts above free cash flow. In fact, 25% of aggregate payouts could not have been paid without the firms simultaneously raising capital. Profitable firms with moderate growth use debt-financed payouts to jointly manage their leverage and cash, thus highlighting the close relationship between payout and capital structure decisions.
Keywords: Payout policy, financing decisions, debt issues, capital structure, cash management.
JEL Classification: G35; G32
Suggested Citation: Suggested Citation