Relationship Life Cycle and Firm’s Payout Policy

Abstract

This paper examines the effect of relationship duration with major customer on supplier’s payout policies. I find that firm which remains the relation with major customer in a longer period pays higher dividend. This finding is unbiased by the substitutional effect between dividend and repurchase and robust in different model specifications. Digging deeper, I find that the positive effect of relationship duration with major customer on supplier dividend payout is contributable to the reduction in adverse effect of cash flow volatility, dependence on major customer and the increase in knowledge spillovers from customer.

Keywords: dividend, relationship life cycle, financial destress, cash-flow volatility

JEL Classification: G35, M31