R&D Investments and Dividend Policies: Reputation or Flexibility?

36 Pages Posted: 16 Nov 2016

See all articles by Kenichi Nagasawa

Kenichi Nagasawa

University of Tsukuba

Akitoshi Ito

Hitotsubashi University Business School

Date Written: November 15, 2016

Abstract

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

Suggested Citation

Nagasawa, Kenichi and Ito, Akitoshi, R&D Investments and Dividend Policies: Reputation or Flexibility? (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=2870129 or http://dx.doi.org/10.2139/ssrn.2870129

Kenichi Nagasawa

University of Tsukuba ( email )

Tsukuba University , Ibaraki Ken
Tsukuba, Ibaraki 305-8573, Ibaraki 3050006
Japan

Akitoshi Ito (Contact Author)

Hitotsubashi University Business School ( email )

2-1-2 Hitotsubashi
Chiyoda-ku, Tokyo, 101-8439
Japan

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