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Dividend smoothing and credit rating changes

journal contribution
posted on 16.03.2020, 11:37 by Panagiotis Asimakopoulos, Stylianos Asimakopoulos, Aichen Zhang
This paper examines the impact of credit rating changes on firms' dividend smoothing behavior, considering for the first time the"big three" credit rating agencies (Standard and Poor's, Fitch and Moody's). Using a hand collected sample of credit rating changes for firms listed at the S&P500 that are involved in dividend payments, we implement the traditional Lintner's (1956) model and we initially verify the fact that firms smooth their dividend payments. Then we consider the effect of credit rating changes on smoothing behavior and we show the presence of an asymmetric impact on credit rating changes to dividend smoothing behavior. In particular, on average, a credit rating downgrade among any of the three credit rating agencies forces firms to engage in less smoothing, whereas a credit rating upgrade has only a marginal positive effect on dividend smoothing. Finally, our key results remain valid for firms with high level of financial pressure and under various robustness checks.

History

School

  • Business and Economics

Department

  • Business

Published in

The European Journal of Finance

Volume

27

Issue

1-2

Pages

62 - 85

Publisher

Taylor and Francis

Version

AM (Accepted Manuscript)

Rights holder

© Taylor and Francis

Publisher statement

This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 13 Mar 2020, available online: https://doi.org/10.1080/1351847x.2020.1739101

Acceptance date

25/02/2020

Publication date

2020-03-13

Copyright date

2020

ISSN

1351-847X

eISSN

1466-4364

Language

en

Depositor

Dr Panagiotis Asimakopoulos Deposit date: 13 March 2020

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Loughborough Publications

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