Large Dividend Increases and Leverage

48 Pages Posted: 16 Jun 2017 Last revised: 25 Oct 2017

See all articles by Ian A. Cooper

Ian A. Cooper

London Business School

Neophytos Lambertides

Cyprus University of Technology

Date Written: September 15, 2017


This study documents the fact that large dividend increases are followed by a significant increase in leverage, consistent with management increasing the dividend to use up excess debt capacity. However, the leverage increase is not captured by a standard partial adjustment model of leverage. Nor does it reflect variables known to be related to dividend increases, such as firm maturity, investment, and risk. Instead, the dividend increase signals a complex change in the way firms adjust to their leverage target, but it does not signal a change in the target.

Keywords: Capital structure, dividend policy, dividend changes, leverage

JEL Classification: G32, G35

Suggested Citation

Cooper, Ian Anthony and Lambertides, Neophytos, Large Dividend Increases and Leverage (September 15, 2017). Available at SSRN: or

Ian Anthony Cooper (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 171 262 5050 (Phone)

Neophytos Lambertides

Cyprus University of Technology ( email )

Limassol, 3603

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