THE EFFECT OF LIQUIDITY SHOCKS ON PAYOUT POLICY CHOICE AND FUTURE EARNINGS GROWTH

This paper examines payout policies following firm-specific abnormal changes in cash balances (liquidity shocks). The resulting payout policy changes are studied within the context of liquidity shocks to distinguish between information asymmetry and agency related motivations. Informational asymmetr...

Full description

Saved in:
Bibliographic Details
Published inAmerican journal of business research (Cary, N.C.) Vol. 6; no. 1; p. 33
Main Authors Wann, Christi R, Brockman, Christopher M
Format Journal Article
LanguageEnglish
Published Cary American Institute of Higher Education 01.11.2013
Subjects
Asymmetry
Cash flow forecasting
Dividends
Earnings
Earnings per share
Growth rate
Hypotheses
Impact analysis
Liquidity
Profits
Rates of return
Stock exchanges
Stock prices
Stockholders
Studies
Online AccessGet full text

Cover

More Information
Summary:This paper examines payout policies following firm-specific abnormal changes in cash balances (liquidity shocks). The resulting payout policy changes are studied within the context of liquidity shocks to distinguish between information asymmetry and agency related motivations. Informational asymmetry problems are more severe for high market-to-book firms with a larger set of growth opportunities. Agency problems are more severe for low market-to-book firms with a smaller set of growth opportunities. For positive (negative) shock events, high growth opportunity firms increase (maintain) dividend payouts to signal improved profitability in future periods. Low growth opportunity firms decrease dividend payouts and share repurchases in response to negative liquidity shocks. In positive liquidity shock events, low growth opportunity firms distribute excess cash through share repurchases that are non-informative. [PUBLICATION ABSTRACT]
ISSN:1934-6484