External finance and dividend policy: A twist by financial constraints

He, Z, Chen, X, Huang, W, Pan, R and Shi, J 2016, 'External finance and dividend policy: A twist by financial constraints', Accounting and Finance, vol. 56, no. 4, pp. 935-959.

Document type: Journal Article
Collection: Journal Articles

Title External finance and dividend policy: A twist by financial constraints
Author(s) He, Z
Chen, X
Huang, W
Pan, R
Shi, J
Year 2016
Journal name Accounting and Finance
Volume number 56
Issue number 4
Start page 935
End page 959
Total pages 24
Publisher Wiley-Blackwell Publishing Asia
Abstract This study assesses distorting effect of financial constraints on the inverse relationship between internal and external finance by examining impact of an exogenous financing shock (i.e. a regulation released in China in 2008) on dividend policies in a quasi-natural experimental setting. Our result shows that in the absence of the regulation, the inverse relationship holds. However, the relation is twisted by the 2008 regulation. Compared with unconstrained firms, financially constrained firms are more willing to pay dividends and are more restrained to reduce cash dividends after the regulation, despite the fact that their external financing capacities are further constrained.
Subject Finance
Investment and Risk Management
Financial Institutions (incl. Banking)
Keyword(s) Dividend policy
External finance
Financial constraint
DOI - identifier 10.1111/acfi.12245
Copyright notice © 2016 AFAANZ.
ISSN 0810-5391
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