Journal Article10.2139/SSRN.766086
Dividend Policy and the Earned/Contributed Capital Mix: A Test of the Lifecycle Theory
TL;DR: In this paper, the authors show that the fraction of publicly traded industrial firms that pay dividends is high when retained earnings are a large portion of total equity (and of total assets) and falls to near zero when most equity is contributed rather than earned.
read more
Abstract: Consistent with a lifecycle theory of dividends, the fraction of publicly traded industrial firms that pays dividends is high when retained earnings are a large portion of total equity (and of total assets) and falls to near zero when most equity is contributed rather than earned. We observe a highly significant relation between the decision to pay dividends and the earned/contributed capital mix, controlling for profitability, growth, firm size, leverage, cash balances, and dividend history, a relation that also holds for dividend initiations and omissions. In our regressions, the mix of earned/contributed capital has a quantitatively greater impact than measures of profitability and growth opportunities. We document a massive increase in firms with negative retained earnings (from 11.8% of industrials in 1978 to 50.2% in 2002). Controlling for the earned/contributed capital mix, firms with negative retained earnings show virtually no change in their propensity to pay dividends from the mid-1970s to 2002, while those whose earned equity makes them reasonable candidates to pay dividends have a propensity reduction that is twice the overall reduction in Fama and French (2001). All our evidence supports the lifecycle theory of dividends, in which a firm's stage in that cycle is well-proxied by its mix of internal and external capital.
read more
Chat with Paper
AI Agents for this Paper
Find similar papers on Google Scholar, PubMed and Arxiv
Write a critical review of this paper
Analyze citations of this paper to find unaddressed research gaps
Citations
•Posted Content
Dividends and Share Repurchases in the European Union
TL;DR: In this article, the authors examined the evolution of cash dividends and share repurchases from 1989 to 2005 in the fifteen nations that were members of the European Union before May 2004, and found that the fraction of European firms paying dividends declines over this period, while total real dividends paid increase significantly.
475
Dynamic Security Design: Convergence to Continuous Time and Asset Pricing Implications
TL;DR: In this paper, the authors study the optimal contract in discrete time and prove the convergence of the discrete-time value functions and optimal contracts, and then study the continuous-time limit of the model.
How Valuable is Financial Flexibility When Revenue Stops? Evidence from the Covid-19 Crisis
TL;DR: The COVID-19 shock creates a sudden temporary sharshortfall in revenue for firms as discussed by the authors, and they expect firms with greater financial flexibility to be better able to fund.
Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies
Claudia Custodio,Daniel Metzger +1 more
TL;DR: In this paper, the role of CEOs with a career background in finance is studied and it is shown that firms that appoint financial expert CEOs hold less cash and more debt, and engage in more share repurchases.
416
Dividend policy, creditor rights, and the agency costs of debt.
Paul Brockman,Emre Unlu +1 more
TL;DR: This paper showed that country-level creditor rights influence dividend policies around the world by establishing the balance of power between debt and equity claimants, and that both the probability and amount of dividend payouts are significantly lower in countries with poor creditor rights.
412
References
Theory of the firm: Managerial behavior, agency costs and ownership structure
TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
61.3K
A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
Whitney K. Newey,Kenneth D. West +1 more
TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
Corporate financing and investment decisions when firms have information that investors do not have
TL;DR: In this paper, a firm that must issue common stock to raise cash to undertake a valuable investment opportunity is considered, and an equilibrium model of the issue-invest decision is developed under these assumptions.
17.6K
•Posted Content
Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers
TL;DR: In this paper, the benefits of debt in reducing agency costs of free cash flows, how debt can substitute for dividends, why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, and why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil.
17.5K
Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama,James D. MacBeth +1 more
TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.