Does rollover risk matter to payout policies? Evidence from Japanese listed firms

Abstract

This study examines the effects of rollover risk of a firm’s debt on its payout policies, considering differences in the structure of that debt. The results reveal that in the face of rollover risk, firms decrease dividends, in addition to the total payout to shareholders, including stock repurchases. However, these results are more pronounced for firms that depend on bank financing as compared to those firms that have access to the public debt markets. The study determines that the relationship between rollover risk and payout policy weakens for firms that do not have financing constraints, implying that firms’ payout policies can be adjusted when firms facing financial constraints need more financial flexibility. Additionally, by identifying Japan’s unique groups of firms (“keiretsu”), the study attempts to analyze how information asymmetry and agency conflicts affect firms’ payout policies. It finds that keiretsu firms are likely to reduce dividend payouts as their rollover needs increase; however, non-keiretsu firms are less inclined to do so.