We find that emerging market firms exhibit dividend behavior similar to U.S. firms, in the sense that dividends are explained by profitability, debt, and the market-to-book ratio. However, empirical dividend policy equations are structurally different, indicating different sensitivities to these variables. Additionally, emerging market firms seem to be more affected by asset mix, which seems to be due to their greater reliance on bank debt. Overall, country factors are as important in dividend policies as previous studies find them to be in capital structure decisions. 2003 The Southern Finance Association and the Southwestern Finance Association.

We analyze how the availability of internal funds affects a firm's investment. We show that under fairly standard assumptions, the relation is U-shaped: investment increases monotonically with internal funds if they are large but decreases if they are very low. We discuss the tradeoff that generates the U-shape, and argue that models predicting an always increasing relation are based on restrictive assumptions. Using a large data set, we find strong empirical support for our predictions. Our results qualify conventional wisdom about the effects of financial constraints on investment behavior, and help to explain seemingly conflicting findings in the empirical literature.

No abstract

We find that firms that regularly access public debt (bond) markets are more likely to pay a dividend and subsequently follow a dividend smoothing policy than firms that rely exclusively on private (bank) debt. In particular, firms with bond ratings follow a traditional Lintner (1956) style dividend smoothing policy, where the influence of the prior dividend payment is very strong and the current dividend is relatively insensitive to current earnings. In contrast, firms without bond ratings flow through more of their earnings as dividends and display very little dividend smoothing behavior. In effect, they seem to follow a residual dividend policy.

No abstract