Excess Corporate Payouts and Financial Distress Risk

53 Pages Posted: 8 Feb 2016 Last revised: 17 Jan 2019

See all articles by Dimitris Andriosopoulos

Dimitris Andriosopoulos

Strathclyde Business School

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

Date Written: January 16, 2019

Abstract

Firms that follow excessive payout policies (over-payers) are higher on the financial distress spectrum and have lower survival rates than under-payers. In addition, over-payers endure lower future sales and asset growth than under-payers. Exogenous import tariff reductions, which increase product market competition and impact negatively on cash flows, reduce the likelihood of overpayment. We interpret this as evidence consistent with a financial flexibility channel explaining the relation between excessive payouts and financial distress, rather than a risk-shifting mechanism. Our finding of a positive association between excessive payouts and financial distress risk is robust to using different definitions of overpayment and financial distress, various empirical specifications and tests mitigating the impact of confounding effects.

Keywords: payout policy, financial distress, firm survival, institutional investor, over-payers, corporate governance

JEL Classification: G32, G33, G35

Suggested Citation

Andriosopoulos, Dimitris and De Cesari, Amedeo and Stathopoulos, Konstantinos, Excess Corporate Payouts and Financial Distress Risk (January 16, 2019). Available at SSRN: https://ssrn.com/abstract=2728942 or http://dx.doi.org/10.2139/ssrn.2728942

Dimitris Andriosopoulos

Strathclyde Business School ( email )

199 Cathedral Street
Department of Accounting and Finance
Glasgow, G4 0QU
United Kingdom
+44(0)1415483892 (Phone)

HOME PAGE: http://www.strath.ac.uk/staff/andriosopoulosdimitrisdr/

Amedeo De Cesari (Contact Author)

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group ( email )

Crawford House
Booth Street East
Manchester, M15 6PB
United Kingdom
+44 (0) 161 2754298 (Phone)

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

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