Corporate payout policies during crisis

: the evolving role of dividends and share repurchases in the U.S.

Abstract

This study seeks to investigate the evolution of corporate payout policies, focusing on dividends and share repurchases, as well as their dynamic interplay during periods of economic stability and crisis. Using data from U.S. firms over the period from 2000 to 2023, the analysis examines how macroeconomic conditions and firm-specific characteristics influence corporate payout decisions. The study focuses on three key objectives: understanding the relative stability of dividends compared to share repurchases during recessions, analyzing the determinants of dividend forecast error, and exploring how share repurchases affect forecast variability. The results show that firms prioritize dividends over share repurchases during economic downturns, highlighting their signaling role. In contrast, share repurchases, though offering flexibility, contribute to greater forecasts. Larger firms and those with stable earnings are shown to exhibit lower forecast errors, whereas higher earnings volatility and free cash flow introduce greater variability. These findings build on the substitution hypothesis proposed by Michaely and Grullon (2002) and emphasize the complementary roles of dividends and buybacks in balancing stability and flexibility. The study provides valuable insights for managers seeking to optimize payout strategies, investors interpreting financial signals, and policymakers assessing the broader economic implications of corporate payout practices. By advancing the understanding of how firms respond to financial challenges, the analysis provides a modern perspective on corporate financial strategies in uncertain economic conditions.

Date of Award	27 Jan 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)