Abstract
This article investigates the relation between dividend payout policy and financial constraints, focusing on the Italian SMEs between 2015 and 2019 and adopting credit ratings as a measure of access to external financial resources. According to our findings, there is a positive relation between firm solvency and the payment of dividends, suggesting that, when companies’ financial constraints are higher, we can expect lower odds that they will pay out dividends. Nevertheless, there is also evidence that younger SMEs are interested in signaling their expected profitability to attract future investors and support access to the capital market.
Highlights
Financial Constraints and the Drawing on Fazzari et al (1988) [1], the recent literature has focused on the difficulties of gathering financial resources in the capital market, paying particular attention to the identification of constrained companies and their main characteristics [2]
This condition might be negatively amplified by asymmetric information between parties and moral hazards [6,7,8], which are even more significant if we consider SMEs, since the probability of being under financial constraint depends on a firm’s size [9,10,11]
Our findings show a positive relation between credit rating class and dividend payouts, meaning that, as financial constraints decrease, companies are ever more likely to pay out dividends
Summary
Financial Constraints and the Drawing on Fazzari et al (1988) [1], the recent literature has focused on the difficulties of gathering financial resources in the capital market, paying particular attention to the identification of constrained companies and their main characteristics [2]. According to this evidence, firms’ access to the financial markets and the successful collection of the funds needed is affected by market dynamics and imperfections [3,4] or exogenous shocks [5]. The board of directors must decide whether to distribute the company’s earnings to its shareholders, which sends a positive signal to new investors on the market [18,19], decreasing the information asymmetries between firm management and shareholders [20]
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