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RSFAS Seminar | Assoc Prof Joan Farre-Mensa

RSFAS Seminar | Assoc Prof Joan Farre-Mensa

Institution:  The University of Illinois at Chicago 

Date and Time: 07 August 2020, from 10:00 AEST

Title: Financing Payouts

Abstract: We study the extent to which firms rely on the capital markets to fund their payouts as well as the consequence of doing so. We find that 43% of firms that pay out capital also initiate debt or equity issues in the same year, resulting in 31% of aggregate payouts being externally financed and 37% of all capital raised in a given year being simultaneously paid out—primarily via share repurchases. Most firms that simultaneously raise and distribute capital do not generate enough free cash flow to fund their payouts internally. Payouts financed by debt, which allow firms to jointly manage their capital structure and liquidity, are by far the most common. Debt-financed payouts appear to increase firms’ exposure to negative shocks, particularly in the case of firms that have a high-yield credit rating or an unrated: For such firms, debt-financed payouts are associated with lower investment levels during industry downturns and a deeper stock price decline during the COVID-19 crisis.

Updated:   31 July 2020 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team