Dividend Smoothing and Debt Ratings

We find that firms that regularly access public debt (bond) markets are more likely to pay a dividend and subsequently follow a dividend smoothing policy than firms that rely exclusively on private (bank) debt. In particular, firms with bond ratings follow a traditional Lintner (1956) style dividend...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2006-06, Vol.41 (2), p.439-453
Main Authors: Aivazian, Varouj A., Booth, Laurence, Cleary, Sean
Format: Article
Language:English
Subjects:
Bond markets
Bond rating
Coefficients
Companies
Debt
Debt market
Dividends
Earnings
Economic models
Payments
Profitable firms
Public debt
Ratings & rankings
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Summary:We find that firms that regularly access public debt (bond) markets are more likely to pay a dividend and subsequently follow a dividend smoothing policy than firms that rely exclusively on private (bank) debt. In particular, firms with bond ratings follow a traditional Lintner (1956) style dividend smoothing policy, where the influence of the prior dividend payment is very strong and the current dividend is relatively insensitive to current earnings. In contrast, firms without bond ratings flow through more of their earnings as dividends and display very little dividend smoothing behavior. In effect, they seem to follow a residual dividend policy.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109000002131