Financial Constraints and Dividend Policy

Posted: 30 Jul 2016

See all articles by Robert W. Faff

Robert W. Faff

University of Queensland

Carlos Fernandez

Oviedo University - School of Economics and Business

Nicholas Masters

Independent

Shams Pathan

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2016

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 inferior post-dividend-increase 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

Suggested Citation

Faff, Robert W. and Fernandez, Carlos and Masters, Nicholas and Pathan, Shams, Financial Constraints and Dividend Policy (August 1, 2016). Australian Journal of Management, Vol. 41, No. 3, 2016. Available at SSRN: https://ssrn.com/abstract=2815874

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

Shams Pathan (Contact Author)

affiliation not provided to SSRN

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