Testing Trade-Off and Pecking Order Predictions About Dividends and Debt
Eugene Fama ()
The Review of Financial Studies, 2002, vol. 15, issue 1, 1-33
Abstract:
Confirming predictions shared by the trade-off and pecking order models, more profitable firms and firms with fewer investments have higher dividend payouts. Confirming the pecking order model but contradicting the trade-off model, more profitable firms are less levered. Firms with more investments have less market leverage, which is consistent with the trade-off model and a complex pecking order model. Firms with more investments have lower long-term dividend payouts, but dividends do not vary to accommodate short-term variation in investment. As the pecking order model predicts, short-term variation in [oplus ]investment and earnings is mostly absorbed by debt. Copyright 2002, Oxford University Press.
Date: 2002
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The Review of Financial Studies is currently edited by Itay Goldstein
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