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Large dividend increases and leverage

Journal

Journal of Corporate Finance

Subject

Finance

Publishing details

Journal of Corporate Finance 2018 February Vol 48 p 17-33

Authors / Editors

Cooper I;Lambertides N

Biographies

Ian Cooper

Publication Year

2018

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

Available on ECCH

No


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