Abstract
This study explores whether payout reductions represent an alternative source of investment funds. We focus on the distinct, financially constrained maritime sector and draw a sample of 1863 firm-year observations from 143 globally-listed maritime firms during 1987-2020. Investigating the payout reduction-investment nexus, we document a positive relationship that surfaces in recession periods. Our findings indicate that payout reductions represent a source of funds for maritime firms in times of negative external financing shocks.
Highlights
The association between dividends and investments has attracted a lot of attention in the corporate finance literature (Brav et al, 2005; Bliss et al, 2015; Iyer et al, 2017; Apergis et al, 2021)
The coefficient of the Recession dummy is negative and statistically significant which indicates that investment spending declined during the recession periods both in the US market and the maritime industry
It is important to note that the net effect of cash savings from payout (Payout reduction) on total investment is significantly positive
Summary
The association between dividends and investments has attracted a lot of attention in the corporate finance literature (Brav et al, 2005; Bliss et al, 2015; Iyer et al, 2017; Apergis et al, 2021). Earnings distributions reduce cash at hand and limit the funds available for investment. Considering the well-known rigid nature of dividends, concerns have often been expressed regarding the ability of dividend-paying firms to sufficiently fund investment, especially in recession states. We aim to explore the dividend reduction-investment nexus in the context of global maritime firms.
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