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Corporate growth and strategic payout policy

Author

Listed:
  • Bai-Sian Chen

    (National Chengchi University)

  • Hong-Yi Chen

    (National Chengchi University)

  • Hsiao-Yin Chen

    (Kainan University)

  • Fang-Chi Lin

    (National Pingtung University)

Abstract

This study investigates the role of corporate growth in corporate payout policies. We define a good signaling firm as a high-growth firm paying dividends. We find that good signaling firms have better future operating performances, indicating that high-growth firms pay dividends for the purpose of signaling rather than reducing the problem of free cash flow. In addition, the market efficiently gives price appreciation to good signaling firms around the dividend announcement dates. We also report that high-growth firms can utilize dividend payments to reduce information asymmetry between firms and investors and obtain new funds at lower costs. However, if market uncertainty is high, the benefit of good signaling may be offset by the increase in the cost of equity. High-growth firms thus tend to pay lower dividends if they face higher systematic risk or downturn probability.

Suggested Citation

  • Bai-Sian Chen & Hong-Yi Chen & Hsiao-Yin Chen & Fang-Chi Lin, 2022. "Corporate growth and strategic payout policy," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 641-669, August.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:2:d:10.1007_s11156-022-01053-z
    DOI: 10.1007/s11156-022-01053-z
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    1. Naumoski Aleksandar, 2022. "Financial Policy and Companies’ Sustainable Growth," Economic Themes, Sciendo, vol. 60(3), pages 281-301, September.
    2. Abdullah AlGhazali & Khamis Hamed Al-Yahyaee & Richard Fairchild & Yilmaz Guney, 2024. "What do dividend changes reveal? Theory and evidence from a unique environment," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 499-552, February.
    3. Ben Angelo & Mitchell Johnston, 2023. "Do investors infer future cash flow volatility based on liquidity?," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 259-294, January.

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    More about this item

    Keywords

    Dividend; Corporate growth; Payout policy; Signaling hypothesis; Cost of equity;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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