Financial constraints and dividend policy

Shams Pathan (), Robert Faff, Carlos Fernández Méndez and Nicholas Masters
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Carlos Fernández Méndez: Departamento de Administración de Empresas, University of Oviedo, Spain
Nicholas Masters: PricewaterhouseCoopers, Australia

Australian Journal of Management, 2016, vol. 41, issue 3, 484-507

Abstract: Using a sample of US listed firms over the 1989–2012 period, we find that financially constrained dividend-increasing firms experience superior short-run abnormal stock returns, but suffer worse operating performance compared to similar unconstrained firms. More specifically, constrained firms in more competitive industries realize poorer long-run and operating performance. Likewise, constrained firms that increase dividends during the financial crisis also deliver inferior post-dividend-increase long-run return than do unconstrained firms. We also find evidence that constrained firms show worse stock market reaction to new equity issue announcements following dividend increase, but display a positive market response if they potentially have high investment growth opportunities. Our results are robust to alternative financial constraint proxies and abnormal return measures.

Keywords: Dividends; financial constraints; seasoned equity issues (search for similar items in EconPapers)
JEL-codes: G30 G32 G33 G35 K22 L22 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:41:y:2016:i:3:p:484-507

DOI: 10.1177/0312896214557835

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