Large dividend increases and leverage
نویسنده
چکیده
We study the leverage of firms making large dividend increases. Over the five years following the dividend increase they raise leverage enough to finance the entire dividend increase for that period with debt. This is not explained by trade-off variables or the pecking order. The effect is greatest for big firms with low-powered incentives, suggesting an agency effect whereby they make large dividend increases with the intention of paying for them with debt as a means of controlling the agency problem. This suggests that debt and dividends are complementary in controlling agency problems, not substitutes as has been found elsewhere. JEL Codes: G32, G35
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