Asymmetric Cost Behavior and Dividend Policy
50 Pages Posted: 17 Jan 2016 Last revised: 4 Aug 2018
Date Written: July 30, 2018
Abstract
A prevalent phenomenon documented recently is that costs are sticky, i.e., they fall less for sales decreases than they rise for equivalent sales increases. We examine the effect of this asymmetric cost behavior on a firm’s dividend policy. Given managers’ reluctance to cut dividends, we predict that firms with higher resource adjustment costs and stickier costs pay lower dividends than their peers. We find evidence consistent with this prediction. Further, using a regression discontinuity design that exploits variation in labor adjustment costs generated by close-call union elections, we provide evidence suggesting that the negative relation between cost stickiness and dividend payouts is driven by resource adjustment costs. Our paper sheds new light on the determinants of dividend policy and demonstrates the role of cost behavior in corporate decisions.
Keywords: Asymmetric cost behavior; cost stickiness; dividend payout; adjustment cost
JEL Classification: G31; G35; J51; M41
Suggested Citation: Suggested Citation
Register to save articles to
your library
Recommended Papers
-
Do Short Sellers Exacerbate or Mitigate Managerial Myopia? Evidence from Patenting Activities
-
By Daniel Bradley, Incheol Kim, ...
-
Bank Interventions and Firm Innovation: Evidence from Debt Covenant Violations
By Yuqi Gu, Connie X. Mao, ...
-
Corporate Innovation along the Supply Chain
By Yongqiang Chu, Xuan Tian, ...
-
Hard Marriage with Heavy Burdens: Organized Labor as Takeover Deterrents
By Xuan Tian and Wenyu Wang
-
How Do Foreign Institutional Investors Enhance Firm Innovation?
By Hoang Luong, Fariborz Moshirian, ...
-
Stock Market Liberalization and Innovation
By Fariborz Moshirian, Xuan Tian, ...
-
Do Anti-Takeover Provisions Spur Corporate Innovation? A Regression Discontinuity Analysis
By Thomas J. Chemmanur and Xuan Tian
-
Endogeneity in Empirical Corporate Finance
By Michael R. Roberts and Toni M. Whited
-
The Effect of Labor Unions on CEO Compensation
By Qianqian Huang, Feng Jiang, ...