Leverage target and payout policy

Sharier Azim Khan

Journal of Financial Research, 2021, vol. 44, issue 1, 53-79

Abstract: Depending on whether the existing debt is below or above target debt level, some firms are more willing to raise debt (if needed) than others. In this article, I show that firms are more likely to both increase and smooth dividends when they have below‐target debt after controlling for access to debt. Additionally, I show that when firms have below‐target debt, they use a greater fraction of proceeds from net debt issues to finance dividends. I obtain similar results when repeating the tests with total payouts (dividends plus repurchases) instead of dividends only.

Date: 2021
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https://doi.org/10.1111/jfir.12234

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:44:y:2021:i:1:p:53-79

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