Suchergebnisse

AbstractThis paper presents a two‐period model in which dividends act as a signal of the stability of the firm's future cash flows. It is demonstrated that firms with more stable future cash flows pay a higher dividend. Dividends are a credible signal because the promise of a higher dividend, ceteris paribus, increases the probability that the firm will have to issue equity and pay underwriting costs. Empirically testable implications of the model relating to the cross‐sectional determinants of the level of dividends are also discussed.

AbstractIn this paper the choice of risky debt maturity structure is analyzed in a sequential game framework. The focus is on the set of viable equilibria when there are no transaction costs associated with the choice of debt maturity structure. It is shown that when changes in firm value are independent over time, both short‐ and long‐term debt pooling are Nash sequential equilibrium outcomes. However, only the short‐term debt pooling outcome satisfies the universal divinity refinement. Relaxing the assumption of independent changes in firm value, it is demonstrated that a separating equilibrium in which higher‐quality firms issue short‐term debt and low‐quality firms issue long‐term debt may exist. Furthermore, conditions exist under which long‐term debt pooling is the universally divine outcome.