Abstract
We develop a model of corporate dividend policy based on the idea that management values operating flexibility. By reducing dividends and conserving cash, management increases its flexibility. This improves its ability to invest in projects that it believes are good for the shareholders in the long run but which shareholders would not provide the capital for because they think the projects are value reducing. However, the cost of not paying dividends is a reduction in the current stock price. Management trades off these two aspects of dividends. Flexibility considerations help us understand various dimensions of dividend policy that existing theories do not explain. Our theory generates numerous testable predictions that we confront with the data. The evidence is supportive of the model.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
