Accounting Papers

Document Type

Journal Article

Date of this Version

9-2000

Publication Source

Journal of Financial Economics

Volume

57

Issue

3

Start Page

385

Last Page

415

DOI

10.1016/S0304-405X(00)00062-3

Abstract

We hypothesize that firms choose dividend increases to distribute relatively permanent cash-flow shocks and repurchases to distribute more transient shocks. As predicted, we find that post-shock cash flows of dividend increasing firms exhibit less reversion to pre-shock levels compared with repurchasing firms. We also examine whether the stock market uses the announcement of the payout method to update its beliefs about the permanence of cash-flow shocks. Controlling for payout size and the market's expectation about the permanence of the cash-flow shock, the stock price reaction to dividend increases is more positive than the reaction to repurchases.

Copyright/Permission Statement

© 2000. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0

Keywords

payout policy, stock repurchase, buy-back, payout choice, dividend signaling

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Date Posted: 27 November 2017

This document has been peer reviewed.