HOW STICKY ARE DIVIDENDS? ANALYSIS UNDER CASH SHORTFALLS
Open Access
Author:
Miller, Thomas O.
Graduate Program:
Business Administration
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
October 04, 2011
Committee Members:
George David Haushalter, Dissertation Advisor/Co-Advisor George David Haushalter, Committee Chair/Co-Chair Laura B Field, Committee Member Peter G Iliev, Committee Member N Edward Coulson, Committee Member
Keywords:
dividends payout policy corporate finance finance
Abstract:
This paper analyzes dividend stickiness by examining managers’ decisions whether to cut
dividends when facing cash flow shortfalls. I present two hypotheses regarding this decision.
One, which I label “tradition”, suggests that managers are looking back at dividend history, and
view cutting as a last resort. The other suggests managers are forward looking and their decisions
primarily on expectations about future performance. Analysis of maintaining and cutting groups with poor cash flows lend support to both hypotheses, but firms that maintained their dividend see significant increases in sales growth, and in some cases cash flow, the following year, indicating that managers are forward looking. Firm leverage is particularly important for determining whether a firm cuts its dividend under cash shortfalls.
