Financing Payouts

doi:10.1017/S0022109024000231

Financing Payouts

2024-04-01

1

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AI

DOI：10.1017/S0022109024000231

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We find that 43% of firms that make payouts also raise capital during the same year, resulting in 31% of aggregate payouts being externally financed, primarily with debt. Most financed payouts cannot be explained by payout smoothing in response to volatile earnings or investment (rather, they are the result of firms persistently setting payouts above free cash flow). In fact, 25% of aggregate payouts could not have been paid without the firms simultaneously raising capital. Profitable firms with moderate growth use debt-financed payouts to jointly manage their leverage and cash, thus highlighting the close relationship between payout and capital structure decisions.

Keyword:

DIVIDEND POLICY

STOCK REPURCHASES

CORPORATE

INVESTMENT

FIRMS

DEBT

CASH

PERFORMANCE

CONSTRAINTS

DECISIONS

Financing Payouts

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