Firm Value and Payout Suspensions During Financial Market Distress
64 Pages Posted: 10 Apr 2021 Last revised: 5 Aug 2022
Date Written: July 9, 2021
We use high-frequency data on firms’ dividend and buyback suspensions to estimate the effect on firm value from preserving cash during periods of financial market distress such as the Global Financial Crisis and the Covid-19 pandemic. Our results suggest that saving one percent in cash by suspending dividends is associated with a 2.5 percent increase in firm value. New dynamic tests based on the sequencing of firms’ financing decisions suggest that firm behavior was more in line with the Myers and Majluf (1984) pecking order theory during the pandemic than during the Global Financial Crisis.
Keywords: Dividend and buyback suspensions; value of cash; pecking order theory; high frequency data; financial market distress, Covid-19
JEL Classification: G14, G32, G35
Suggested Citation: Suggested Citation