Corporate liquidity , and dividend policy under uncertainty
نویسندگان
چکیده
We examine firm valuation with optimal liquidity (retained earnings) and dividend choice under revenue uncertainty that incorporates debt financing and bankruptcy costs. We revisit the conditions for dividend policy irrelevancy and the role of retained earnings and dividends. Retained earnings have a net positive impact on firm value in the presence of growth options, high external financing costs and low default risk. High levels of retained earnings enhance debt capacity but have a negative effect on equity value. Opposite directional effects of retained earnings on equity and debt values lead to a U-shaped relation with firm value. Agency conflicts over dividend policy among equity and debt holders are more prevalent for firms with higher profitability, low volatility and high level of growth options.
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