The Effect of Product Market Competition and Financing Constraints on Dividend Payout
10 Pages Posted: 21 Apr 2020
Date Written: March 12, 2020
We examine how product market competition and financing constraints influence firm payout policy. Using Compustat firms for the period 1996 to 2017, we show that competition decreases firms’ propensity to make payouts via dividends more if the firm is financially constrained. These results are consistent with the hypothesis that in the presence of financing constraints, creating internally generated funds (through the reduction of dividends) is more important for firms positioned in competitive markets.
Keywords: Product market, Financial constraint, Payout policy
JEL Classification: G32, G35, D4
Suggested Citation: Suggested Citation