Organizational Structure and Corporate Payout Policy
64 Pages Posted: 11 Dec 2013
Date Written: December 10, 2013
We examine how organizational structure affects corporate payout policies. Conglomerates (multi-segment firms) pay out more than pure plays (single-segment firms) in both cash dividends and total payouts (defined as cash dividends plus share repurchases). Further, corporate payouts increase as the cross-segment correlation (cash flow or investment) in a conglomerate decreases. The above effects are more pronounced for regular cash dividends than for special cash dividends or stock repurchases. To address the endogeneity issues, we also examine corporate payout changes around M&As. Corporate payouts increase after M&As, especially among M&As in which acquirers and targets are less correlated (earnings or investments). The results suggest that retaining earnings to keep financial slack is an important consideration when firms make corporate payout decisions.
Keywords: cash dividends, payout policy, share repurchase, mergers and acquisitions, cross-segment correlations
JEL Classification: G34; G35
Suggested Citation: Suggested Citation