R&D Investments and Dividend Policies: Reputation or Flexibility?
36 Pages Posted: 16 Nov 2016
Date Written: November 15, 2016
We examine whether the reputation effect hypothesis is empirically valid for the dividend behavior of firms in an economy with moderate corporate governance pressures. We take the Japanese economy during the 2000s and early 2010s as a sort of case study. We obtain the following two empirical findings. First, the relationship between the R&D intensity and dividend payouts is inverse U-shaped. Second, for firms with extra cash, the R&D intensity is positively associated with the dividend payouts, and for firms with positive net debt the R&D intensity is less positively associated with the dividend payouts. These results are consistent with the contingency versions of the reputation effect hypothesis.
Keywords: dividends, R&D, reputation, financial flexibility, and governance
JEL Classification: G35
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