What is the relation between financial flexibility and dividend smoothing?

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    This paper investigates the relation between financial flexibility and dividend smoothing policies. We use two proxies for financial flexibility; we measure levels of unused debt capacity and capital structure adjustment speeds. We find a nonlinear relation between unused debt capacity and dividend smoothing. For firms with high levels of unused debt capacity, this relation is positive. However, we find a negative effect for firms with low levels of unused debt capacity. Additionally, we show a positive relation between capital structure adjustment speeds and dividend smoothing. We find that firms absorb shocks to net income by changing their capital structure, and this change enables dividend smoothing. The effects we document are stronger for positive changes to a firm’s net income.


    • What is the relation between financial flexibility and dividend smoothing?

      Rights statement: Copyright 2019 Elsevier. This manuscript is distributed under a Creative Commons Attribution-NonCommercial-NoDerivs License (https://creativecommons.org/licenses/by-nc-nd/4.0/), which permits distribution and reproduction for non-commercial purposes, provided the author and source are cited.

      Accepted author manuscript, 847 KB, PDF-document

      Embargo ends: 18/06/2021


    Original languageUndefined/Unknown
    Pages (from-to)98-111
    JournalJournal of International Money and Finance
    Journal publication date01 Apr 2019
    Early online date12 Dec 2018
    Publication statusPublished - 01 Apr 2019

    ID: 163879090