The relationship between changes in corporate payout policy and capital structureopen accessThe relationship between changes in corporate payout policy and capital structure
- Other Titles
- The relationship between changes in corporate payout policy and capital structure
- Authors
- Kim, Songhee; Khil, Jaeuk; Lee, Yu Kyung
- Issue Date
- Mar-2024
- Publisher
- Emerald Publishing
- Keywords
- Capital structure; Dividend payout policy; Pecking-order theory; Signaling theory; Trade-off theory
- Citation
- Journal of Derivatives and Quantitative Studies, v.32, no.2, pp 1 - 29
- Pages
- 29
- Indexed
- SCOPUS
KCI
- Journal Title
- Journal of Derivatives and Quantitative Studies
- Volume
- 32
- Number
- 2
- Start Page
- 1
- End Page
- 29
- URI
- https://scholarworks.bwise.kr/erica/handle/2021.sw.erica/118286
- DOI
- 10.1108/JDQS-09-2023-0030
- ISSN
- 1229-988X
2713-6647
- Abstract
- This paper aims to investigate the impact of corporate dividend policy on the capital structure in the Korean stock market. To distinctly discern the voluntariness of changes in corporate dividend policy, we analyze companies that, following a substantial increase, do not reduce dividends for the subsequent two years or, after a significant decrease, do not raise dividends for the following two years. Our empirical findings indicate that companies that increase dividends experience a significant decrease in both book and market leverage, even after controlling for variables such as target leverage ratios. This result suggests that a large increase in dividends can effectively reduce information asymmetry, leading to a lower cost of equity. On the contrary, after a decrease in dividends, both book leverage and market leverage significantly increase, revealing a symmetric relationship between dividend policy and capital structure. In conclusion, large dividend increases in Korean companies not only reduce information asymmetry but also lower the cost of equity capital, resulting in observable changes in the leverage ratio. © 2024, Songhee Kim, Jaeuk Khil and Yu Kyung Lee.
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