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Large dividend increases and leverage

Author

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  • Cooper, Ian A.
  • Lambertides, Neophytos

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.

Suggested Citation

  • Cooper, Ian A. & Lambertides, Neophytos, 2018. "Large dividend increases and leverage," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 17-33.
    • Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:17-33
    DOI: 10.1016/j.jcorpfin.2017.10.011
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    References listed on IDEAS

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    Cited by:

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    2. Elena Alexandra Nenu & Georgeta Vintilă & Ştefan Cristian Gherghina, 2018. "The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies," IJFS, MDPI, vol. 6(2), pages 1-29, April.
    3. Ahmad, Muhammad Farooq & Aziz, Saqib & El-Khatib, Rwan & Kowalewski, Oskar, 2023. "Firm-level political risk and dividend payout," International Review of Financial Analysis, Elsevier, vol. 86(C).
    4. Mutaju Marobhe, 2019. "The Nexus between Dividend Policy and Financial Gearing of Listed Non Financial Companies in Tanzania," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 5(5), pages 294-302.
    5. Vu Quang Trinh & Marwa Elnahass & Aly Salama, 2021. "Board busyness and new insights into alternative bank dividends models," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1289-1328, May.
    6. Gyimah, Daniel & Kwansa, Nana Abena & Kyiu, Anthony K. & Sikochi, Anywhere (Siko), 2021. "Multinationality and capital structure dynamics: A corporate governance explanation," International Review of Financial Analysis, Elsevier, vol. 76(C).
    7. Matemilola, Bolaji Tunde & Bany-Ariffin, A.N. & Azman-Saini, W.N.W. & Nassir, Annuar Md, 2019. "Impact of institutional quality on the capital structure of firms in developing countries," Emerging Markets Review, Elsevier, vol. 39(C), pages 175-209.
    8. Shweta Sharma Atre & Dr. Monika Sharma, 2020. "Impact of the Company's Attributes on Capital Structure Efficiency," Journal of Commerce and Trade, Society for Advanced Management Studies, vol. 15(1), pages 29-37, April.
    9. Hayley Baker & Millicent Chang & Choy Yeing (Chloe) Ho, 2021. "Value of dividend signaling in uncertain times," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1419-1440, December.
    10. Xiaoting Wei & Cameron Truong & Viet Do, 2020. "When are dividend increases bad for corporate bonds?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1295-1326, June.
    11. Akhmadi & Siti Epa Hardiyanti, 2020. "How to Attract Attention of Investors Through Dividend Policy on the Consumer Goods Industries?," International Journal of Business and Economic Affairs (IJBEA), Sana N. Maswadeh, vol. 5(1), pages 23-29.
    12. Codruț-Florin Ivașcu, 2024. "Understanding Dividend Puzzle Using Machine Learning," Computational Economics, Springer;Society for Computational Economics, vol. 64(1), pages 161-179, July.
    13. 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.
    14. Akindayomi, Akinloye & Amin, Md Ruhul, 2022. "Does business strategy affect dividend payout policies?," Journal of Business Research, Elsevier, vol. 151(C), pages 531-550.
    15. Mark D. Walker & Keven Yost, 2022. "Seasoned equity offerings and payout policy," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(3), pages 695-718, September.
    16. STANICA Florina-Adriana, 2018. "The Financing Decision Of Romanian Listed Companies - A Descriptive Approach," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 70(1), pages 27-36, August.
    17. Alnori, Faisal & Alqahtani, Faisal, 2019. "Capital structure and speed of adjustment in non-financial firms: Does sharia compliance matter? Evidence from Saudi Arabia," Emerging Markets Review, Elsevier, vol. 39(C), pages 50-67.
    18. Niu, Yuhao & Wang, Sai & Wen, Wen & Li, Sifei, 2023. "Does digital transformation speed up dynamic capital structure adjustment? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Capital structure; Dividend policy; Dividend changes; Leverage;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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