Chen, Shiqi and Lambrecht, Bart (2021) Do Capital Structure Models Square with the Dynamics of Payout? Annual Review of Financial Economics, 13. pp. 271-299. ISSN 1941-1367
Full text not available from this repository.Abstract
We explore whether theoretically the target leverage and pecking-order models can be reconciled with payout smoothing. Investment absorbs a significant part of income and asset volatility if the firm follows both a payout target and a net debt ratio (NDR) target. A positive (negative) NDR amplifies (dampens) shocks in assets. Slow adjustment toward the NDR target facilitates payout smoothing. Under strict pecking-order financing, income shocks are absorbed primarily by changes in net debt. More payout smoothing implies a stronger negative relation between debt and net income. Shocks to assets in place need not affect current payout.