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Cost Structure and Payout Policy
Author(s) -
Kulchania Manoj
Publication year - 2016
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12133
Subject(s) - volatility (finance) , flexibility (engineering) , variable cost , monetary economics , fixed cost , business , dividend , dividend payout ratio , cash , variable (mathematics) , economics , dividend policy , finance , accounting , mathematical analysis , mathematics , management
I investigate the effects of firms’ proportion of fixed and variable costs on their payout policy and find that firms with higher fixed costs have significantly higher volatility in their future cash flows and more variable future operating incomes. These firms pay a lower fraction of their operating income in dividends and share repurchases. Finally, these firms return higher fractions of their payouts via share repurchases because this method offers greater flexibility. The results are robust to several alternate specifications and firm‐level controls, and show that firms’ cost structures play a significant role in payout policy choices.