Major Customers and Corporate Payout Flexibility

Hui Liang James (), Bo Li (), Thanh Ngo () and Hongxia Wang
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Hui Liang James: Soules College of Business, University of Texas at Tyler, 3900 University Blvd, Tyler, TX 75799, USA
Bo Li: College of Business and Economics, California State University, Los Angeles, 5151 State University Dr., Los Angeles, CA 90032, USA
Thanh Ngo: Department of Finance, College of Business, East Carolina University, 3127 Bate Building, Greenville, NC 27858, USA
Hongxia Wang: Department of Finance and Economics, Coastal Carolina University, 100 Chanticleer Dr E, Conway, SC 29528, USA

Quarterly Journal of Finance (QJF), 2022, vol. 12, issue 02, 1-45

Abstract: Using a sample of 17,453 firm-year observations from 1993 to 2017, we find that firms with major customers maintain higher levels of payout flexibility. The positive impact of major customers on payout flexibility is contingent upon cash flow risk, stronger in firms with financial distress, higher cash flow volatility, lower customer switching costs, and greater R&D intensity. The results suggest that major customer-dependent firms tend to pursue more flexible payout policies to maintain or improve their financial flexibility. The results are robust to alternative measures of major customers, the inclusion of additional control variables, and various endogeneity tests.

Keywords: Financial flexibility; corporate payout; major customers; dividends; repurchase; payout flexibility (search for similar items in EconPapers)
JEL-codes: G30 G32 G35 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S2010139222500021

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