EconPapers    
Economics at your fingertips  
 

What is the relation between financial flexibility and dividend smoothing?

Philip Fliers

Journal of International Money and Finance, 2019, vol. 92, issue C, 98-111

Abstract: This paper investigates the relation between financial flexibility and dividend smoothing policies. We use two proxies for financial flexibility; we measure levels of unused debt capacity and capital structure adjustment speeds. We find a nonlinear relation between unused debt capacity and dividend smoothing. For firms with high levels of unused debt capacity, this relation is positive. However, we find a negative effect for firms with low levels of unused debt capacity. Additionally, we show a positive relation between capital structure adjustment speeds and dividend smoothing. We find that firms absorb shocks to net income by changing their capital structure, and this change enables dividend smoothing. The effects we document are stronger for positive changes to a firm’s net income.

Keywords: Dividend smoothing; Capital structure; Financial flexibility; Debt capacity; Lintner; Partial adjustment models (search for similar items in EconPapers)
JEL-codes: G35 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560618304169
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:92:y:2019:i:c:p:98-111

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-09-15
Handle: RePEc:eee:jimfin:v:92:y:2019:i:c:p:98-111