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Organizational Form and Corporate Payout Policy

Published online by Cambridge University Press:  13 March 2018

Bradford D. Jordan ,
Mark H. Liu  and
Qun Wu
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Abstract

We examine how organizational form affects corporate payouts. Conglomerates pay out more than pure plays in both cash dividends and total payouts (cash dividends plus share repurchases). Furthermore, their payouts are more sensitive to cash flows compared to pure-play firms. The sensitivity of payouts to cash flow increases as the cross-segment correlation in a conglomerate decreases. Corporate payouts increase after mergers and acquisitions (M&As), especially among M&As in which acquirers and targets are less correlated. These results suggest that the coinsurance among different divisions of a conglomerate allows them to pay out more cash flow to their shareholders than pure-play firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 2 , April 2018 , pp. 789 - 813
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Tom Chemmanur, Ran Duchin, Jarrad Harford (the editor), Roni Michaely, Amit Seru, Jie Yang, participants at the 2013 Financial Management Association meetings in Chicago, and seminar participants at State University of New York Oneonta and University of Nevada–Reno for their helpful suggestions and comments. All errors and omissions are our own.

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