Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2016
  • Working Paper
  • HBS Working Paper Series

Financing Payouts

By: Joan Farre-Mensa, Roni Michaely and Martin Schmalz
  • Format:Print
  • | Language:English
  • | Pages:79
ShareBar

Abstract

We study the extent to which firms rely on the capital markets to fund their payouts. We find that 42% of firms that pay out capital also initiate debt or equity issues in the same year, resulting in 32% of aggregate payouts being externally financed. Most firms with simultaneous payouts and security issues do not generate enough operating cash flow to fund both their investment and payouts without the proceeds of these issues. Firms devote more external capital to finance their share repurchases than to avoid regular dividend cuts. Debt is the main source of capital used to externally finance payouts, particularly when credit market conditions are favorable. Firms’ desire to jointly manage their capital structure and liquidity policies—for tax or agency reasons—appears to be a key driver of their decision to simultaneously raise and pay out capital.

Keywords

Payout Policy; Financing Decisions; Debt Issues; Equity Issues; Capital Structure; Decision Making; Financing and Loans; Corporate Finance

Citation

Farre-Mensa, Joan, Roni Michaely, and Martin Schmalz. "Financing Payouts." Harvard Business School Working Paper, No. 15-049, December 2014. (Revised December 2016.)
  • SSRN

Related Work

    • 2016
    • Faculty Research

    Financing Payouts

    By: Joan Farre-Mensa, Roni Michaely and Martin Schmalz
Related Work
  • Financing Payouts By: Joan Farre-Mensa, Roni Michaely and Martin Schmalz
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College