Large dividend increases and leverage

Large dividend increases and leverage

We study the leverage of firms making large dividend increases. Over the five years following the dividend increase they raise leverage enough to finance the entire dividend increase for that period with debt. This is not explained by trade-off variables or the pecking order. The effect is greatest for big firms with low-powered incentives, suggesting an agency effect whereby they make large di...

Bondholder Reaction to Increases in Leverage

fiC Bureau of Ecooomks working papers are preliminary materials circulated to stimulate discussion and critical comment All data cootained in them are in the public domain. This includes information obtained by the Commi~on which has become part of pubUc record. The analyses and condusions set forth are those of the authors and do uot neceswily reflect the views of other members of the Bureau o...

Dividend Smoothing and Predictability

The relative predictability of returns and dividends is a central issue because it forms the paradigm to interpret asset price variation. A little studied question is how dividend smoothing, as a choice of corporate policy, affects predictability. We show that even if dividends are supposed to be predictable without smoothing, dividend smoothing can bury this predictability. Because aggregate d...

Speculation and Leverage

Speculative episodes typically involve leverage. For example, the well known tulipmania episode was accompanied by the introduction of foward contracts which allowed speculators to take leveraged positions in tulip bulbs. More recently, the Great Crash of 1929 was exacerbated by leveraged trusts which used leverage to buy stocks. These leveraged trusts could in turn be bought on margin which al...

Learning, Leverage and Stability1