Dividend Paying Firm and Flexibility Hypothesis

26 Pages Posted: 22 Sep 2017

See all articles by Joseph Kerstein

Joseph Kerstein

Yeshiva University - Syms School of Business

Sungsoo Kim

Rutgers Business School - Camden; University of Minnesota Duluth

Joseph I. Onochie

Zicklin School of Business, Baruch College CUNY

Date Written: September 21, 2017

Abstract

Previous research suggests that firms substitute stock repurchases for dividend increases in response to higher cash flow volatility and/or higher tax rates on dividends relative to capital gains. However, when we separately examine repurchase decisions by dividend and non-dividend paying firms, we find little evidence that either cash flow uncertainty or reduced dividend tax rates after the Tax Act of 2003 induces the expected shifts in payments. Instead, we find that the two payout methods appear to have distinctly different shareholder clientele rather than being substitutes for each other.

Keywords: Dividends, Stock Repurchases, Payout Policy

Suggested Citation

Kerstein, Joseph J. and Kim, Sungsoo and Onochie, Joseph I., Dividend Paying Firm and Flexibility Hypothesis (September 21, 2017). Available at SSRN: https://ssrn.com/abstract=3040461 or http://dx.doi.org/10.2139/ssrn.3040461

Joseph J. Kerstein

Yeshiva University - Syms School of Business ( email )

United States

Sungsoo Kim (Contact Author)

Rutgers Business School - Camden ( email )

227 Penn Street
Camden, NJ 08102
United States
856-225-6584 (Phone)

University of Minnesota Duluth ( email )

10 University Avenue
Duluth, MN 55812
United States

Joseph I. Onochie

Zicklin School of Business, Baruch College CUNY ( email )

17 Lexington Avenue
Dept. of Economics and Finance
New York, NY 10010
United States
212-802-6380 (Phone)
212-802-6353 (Fax)

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