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Large dividend increases and leverage

Ian A. Cooper and Neophytos Lambertides

Journal of Corporate Finance, 2018, vol. 48, issue C, 17-33

Abstract: This study documents the fact that large dividend increases are followed by a significant increase in leverage, consistent with management increasing the dividend to use up excess debt capacity. However, the leverage increase is not captured by a standard partial adjustment model of leverage. Nor does it reflect variables known to be related to dividend increases, such as firm maturity, investment, and risk. Instead, the dividend increase signals a complex change in the way firms adjust to their leverage target, but it does not signal a change in the target.

Keywords: Capital structure; Dividend policy; Dividend changes; Leverage (search for similar items in EconPapers)
JEL-codes: G32 G35 (search for similar items in EconPapers)
Date: 2018
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