Open AccessDistressed Firms and Dividend Reductions
Author(s) -
Steven C. Hall,
Vipin K Agrawal,
Pushpa Agrawal
Publication year - 2019
Publication title -
accounting and finance research
Language(s) - English
Resource type - Journals
eISSN - 1927-5994
pISSN - 1927-5986
DOI - 10.5430/afr.v8n1p222
Subject(s) - dividend , dividend payout ratio , business , dividend policy , monetary economics , economics , finance
We are interested in the effects of dividend reduction decisions on the firms that make them. We compare financial ratios of distressed dividend-reducing firms to distressed firms that did not reduce dividends, of nondistressed dividend-reducing firms to nondistressed firms that did not reduce dividends, and ratios of distressed dividend- reducing firms to nondistressed dividend-reducing firms. Results indicate benefits of dividend reductions to both distressed and nondistressed firms. We find a cost to nondistressed firms, i.e., a drop in the market value of the firm in the year following the dividend reduction.