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Dividend Smoothing and Debt Ratings
Varouj A. Aivazian, Laurence Booth and Sean Cleary
The Journal of Financial and Quantitative Analysis
Vol. 41, No. 2 (Jun., 2006), pp. 439-453
Published by: Cambridge University Press on behalf of the University of Washington School of Business Administration
Stable URL: http://www.jstor.org/stable/27647254
Page Count: 15
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We find that firms that regularly access public debt (bond) markets are more likely to pay a dividend and subsequently follow a dividend smoothing policy than firms that rely exclusively on private (bank) debt. In particular, firms with bond ratings follow a traditional Lintner (1956) style dividend smoothing policy, where the influence of the prior dividend payment is very strong and the current dividend is relatively insensitive to current earnings. In contrast, firms without bond ratings flow through more of their earnings as dividends and display very little dividend smoothing behavior. In effect, they seem to follow a residual dividend policy.
The Journal of Financial and Quantitative Analysis © 2006 University of Washington School of Business Administration