Investment and Deleveraging Financed by Dividends: Evidence from Japanese Business Groups
49 Pages Posted: 9 May 2018 Last revised: 30 Jul 2018
Date Written: April 30, 2018
With a large sample from Japan during the period of 1990-2012, we find firms that belong to business groups (“keiretsu”) pay more cash dividends when the affiliated dividend-receiving firms have better investment opportunities, are in financial distress, or have a stronger linkage to the dividend-paying firms. Using exogenous changes to taxes on corporate dividends, difference-in-differences, and falsification tests, we further establish that keiretsu firms’ dividend payouts have a causal impact on receiving firms’ investment and debt policies. Our results highlight the importance of inter-firm financing, especially during periods of high external financing costs, even for firms in a developed economy.
Keywords: Japan, business group, cross-holding, dividend, investment, debt
JEL Classification: G2, O1, R2
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