Investment and Deleveraging Financed by Dividends: Evidence from Japanese Business Groups

49 Pages Posted: 9 May 2018 Last revised: 30 Jul 2018

See all articles by Abhinav Goyal

Abhinav Goyal

University College Cork

Cal B. Muckley

University College Dublin

QJ Qian

Fudan University - Fanhai International School of Finance (FISF)

Hassan Tehranian

Boston College - Department of Finance

Date Written: April 30, 2018

Abstract

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

Suggested Citation

Goyal, Abhinav and Muckley, Cal B. and Qian, Jun QJ and Tehranian, Hassan, Investment and Deleveraging Financed by Dividends: Evidence from Japanese Business Groups (April 30, 2018). Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 18-2. Available at SSRN: https://ssrn.com/abstract=3175833 or http://dx.doi.org/10.2139/ssrn.3175833

Abhinav Goyal (Contact Author)

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland
+353 (0)21 490 2839 (Phone)

Cal B. Muckley

University College Dublin ( email )

Blackrock, Co. Dublin
Ireland
+353-1-716-8091 (Phone)

Jun QJ Qian

Fudan University - Fanhai International School of Finance (FISF)

China

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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