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    Financial constraints and dividend policy

    Access Status
    Fulltext not available
    Authors
    Pathan, Md Shams Tabrize
    Faff, R.
    Méndez, C.F.
    Masters, N.
    Date
    2016
    Type
    Journal Article
    
    Metadata
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    Citation
    Pathan, S. and Faff, R. and Méndez, C.F. and Masters, N. 2016. Financial constraints and dividend policy. Australian Journal of Management. 41 (3): pp. 484-507.
    Source Title
    Australian Journal of Management
    DOI
    10.1177/0312896214557835
    ISSN
    0312-8962
    Faculty
    Faculty of Business and Law
    School
    School of Economics, Finance and Property
    URI
    http://hdl.handle.net/20.500.11937/76641
    Collection
    • Curtin Research Publications
    Abstract

    © The Author(s) 2015. Using a sample of US listed firms over the 1989–2012 period, we find that financially constrained dividend-increasing firms experience superior short-run abnormal stock returns, but suffer worse operating performance compared to similar unconstrained firms. More specifically, constrained firms in more competitive industries realize poorer long-run and operating performance. Likewise, constrained firms that increase dividends during the financial crisis also deliver inferior post-dividend-increase long-run return than do unconstrained firms. We also find evidence that constrained firms show worse stock market reaction to new equity issue announcements following dividend increase, but display a positive market response if they potentially have high investment growth opportunities. Our results are robust to alternative financial constraint proxies and abnormal return measures.

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