PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN
Share repurchases are perceived as a flexible payout mechanism as it distributes free cash flow while mitigating the risk of underinvestment. It may be simpler to stop or trim share repurchases than dividend payments. We test the flexibility hypothesis of share repurchases using the Covid-19 econom...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Tuwhera Open Access Publisher
2023-01-01
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| Series: | Applied Finance Letters |
| Online Access: | https://ojs.aut.ac.nz/applied-finance-letters/article/view/597 |
| _version_ | 1797944663315841024 |
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| author | Omar Esqueda Thomas O'Connor |
| author_facet | Omar Esqueda Thomas O'Connor |
| author_sort | Omar Esqueda |
| collection | DOAJ |
| description |
Share repurchases are perceived as a flexible payout mechanism as it distributes free cash flow while mitigating the risk of underinvestment. It may be simpler to stop or trim share repurchases than dividend payments. We test the flexibility hypothesis of share repurchases using the Covid-19 economic crisis as a natural experiment where firms encounter a sudden cash-flow uncertainty. We employ a balanced panel of S&P 1500 firms from the period 2014 to 2021. Our results are consistent with the view that share repurchases offer more flexibility than dividends. Firms are likely to reduce share repurchases when they are cash constrained but still maintain dividend payouts. However, firms are also likely to trim dividends if the financial constraints persist.
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| first_indexed | 2024-04-10T20:43:11Z |
| format | Article |
| id | doaj.art-f2ba79301ea94c73aa84e4e6bd47fe74 |
| institution | Directory Open Access Journal |
| issn | 2253-5799 2253-5802 |
| language | English |
| last_indexed | 2024-04-10T20:43:11Z |
| publishDate | 2023-01-01 |
| publisher | Tuwhera Open Access Publisher |
| record_format | Article |
| series | Applied Finance Letters |
| spelling | doaj.art-f2ba79301ea94c73aa84e4e6bd47fe742023-01-24T16:51:14ZengTuwhera Open Access PublisherApplied Finance Letters2253-57992253-58022023-01-0111PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURNOmar Esqueda0Thomas O'Connor1Tarleton State UniversityNational University of Ireland Maynooth Share repurchases are perceived as a flexible payout mechanism as it distributes free cash flow while mitigating the risk of underinvestment. It may be simpler to stop or trim share repurchases than dividend payments. We test the flexibility hypothesis of share repurchases using the Covid-19 economic crisis as a natural experiment where firms encounter a sudden cash-flow uncertainty. We employ a balanced panel of S&P 1500 firms from the period 2014 to 2021. Our results are consistent with the view that share repurchases offer more flexibility than dividends. Firms are likely to reduce share repurchases when they are cash constrained but still maintain dividend payouts. However, firms are also likely to trim dividends if the financial constraints persist. https://ojs.aut.ac.nz/applied-finance-letters/article/view/597 |
| spellingShingle | Omar Esqueda Thomas O'Connor PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN Applied Finance Letters |
| title | PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN |
| title_full | PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN |
| title_fullStr | PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN |
| title_full_unstemmed | PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN |
| title_short | PAYOUT POLICY DURING MARKET-WIDE FINANCIAL CONSTRAINTS: EVIDENCE FROM THE COVID-19 DOWNTURN |
| title_sort | payout policy during market wide financial constraints evidence from the covid 19 downturn |
| url | https://ojs.aut.ac.nz/applied-finance-letters/article/view/597 |
| work_keys_str_mv | AT omaresqueda payoutpolicyduringmarketwidefinancialconstraintsevidencefromthecovid19downturn AT thomasoconnor payoutpolicyduringmarketwidefinancialconstraintsevidencefromthecovid19downturn |