The role of leverage in the asymmetric valuation of dividends
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Date
2008
Authors
Kremer, Daniel
University of Lethbridge. Faculty of Management
Journal Title
Journal ISSN
Volume Title
Publisher
Lethbridge, Alta. : University of Lethbridge, Faculty of Management, c2008
Abstract
Fuller and Goldstein (2004) find that dividend payments are more valuable in
down markets than in up markets. This research extends this study to determine whether
the asymmetry in valuing dividend signals is influenced by debt financing. This is
essential since firms with high debt financing are more likely to be affected by down
markets than those with low debt financing. Consistent with this, the results show firms
with greater indebtedness experience greater declines in returns during down markets.
This decline, however, was observed to be mitigated by the payment of dividends, with
the greatest improvement in returns concentrated with the most highly indebted firms.
These results are robust to size, beta, and book-to-market values.
Description
vi, 36 leaves ; 29 cm
Keywords
Dividends , Financial leverage , Corporate debt