Financial Management

Financial Management Developmental Paper Session

Dividend Policy: Does the capital structure matter?

KK

Konstantinos Kakouris

DP

Dimitrios Psychoyios

EC

Evangelos Charalampakis

Abstract

Capital structure influence dividend smoothing behavior. Using a sample of US firms over the period 1960 – 2020, we test the pecking order model and Lintner model. We confirm that firms following pecking order model smooth dividends more. We also focus on firms with debt and equity issues. As pecking order theory predicts, firms with deficits, prefer to finance new investments with debt and then with equity. We find strong evidence that debt-issuing firms follow pecking order model as well as dividend smoothing model. However, we find that equity-issuing firms do not follow the pecking order model and tend to follow less dividend smoothing. Similarly, we focus on firms with debt and equity repurchases when firms have a surplus. We document that firms paying down debt follow pecking order model, although smooth their dividend less. We conclude that the type of issuance/repurchase is critical when firms determines its dividend smoothing and pecking order policy.

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Developmental Paper

Primary Track

Financial Management

Keywords

Corporate Finance ,Financial Decision Making

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Published in BAM2023 Conference

Publisher X-CD Journal

Date of Conference September 5–6, 2023