The sensitivity of payouts to corporate financing decisions
Abstract
Purpose
The purpose of this article is to empirically explore the sensitivity of payouts to cash flows and the other financing decisions, such as debt and investment, of firms.
Design/methodology/approach
Using panel regressions based on COMPUSTAT data for 7,544 public firms during the period 1973–2013, we estimate the sensitivity of total payouts. Specifically, following the theory presented in Lambrecht and Myers (2012), we test the interdependent financing decisions of the firm. First, we compute total payout as the sum of cash dividends and net stock repurchases; second, we examine the sensitivity of total payouts to changes in the firm’s net income, debt and investment. Furthermore, we present several tests to demonstrate the robustness of our results.
Findings
We suggest evidence in support of the theory in Lambrecht and Myers (2012) showing that there is a negative relationship between total payouts and investment. Furthermore, we find that total payouts are positively associated with net income and debt of the firm.
Originality/value
Previous research has shown how cash flows affect different financing decisions, but it is not clear how total payouts are sensitive to other financing decisions. The focus of this paper is the response of total payouts to investment policy, debt financing policy and changes in cash flows.
Keywords
Citation
Hoang, E.C. and Hoxha, I. (2015), "The sensitivity of payouts to corporate financing decisions", Journal of Financial Economic Policy, Vol. 7 No. 4, pp. 290-300. https://doi.org/10.1108/JFEP-01-2015-0005
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited