Leverage target and payout policy

Depending on whether the existing debt is below or above target debt level, some firms are more willing to raise debt (if needed) than others. In this article, I show that firms are more likely to both increase and smooth dividends when they have below‐target debt after controlling for access to deb...

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Bibliographic Details
Published in:The Journal of financial research 2021-04, Vol.44 (1), p.53-79
Main Author: Azim Khan, Sharier
Format: Article
Language:English
Subjects:
Corporate debt
Dividend policy
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Summary:Depending on whether the existing debt is below or above target debt level, some firms are more willing to raise debt (if needed) than others. In this article, I show that firms are more likely to both increase and smooth dividends when they have below‐target debt after controlling for access to debt. Additionally, I show that when firms have below‐target debt, they use a greater fraction of proceeds from net debt issues to finance dividends. I obtain similar results when repeating the tests with total payouts (dividends plus repurchases) instead of dividends only.
ISSN:0270-2592
1475-6803
DOI:10.1111/jfir.12234