Portal de Periódicos da CAPES

Testing Tradeoff and Pecking Order Predictions About Dividends and Debt

1999; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.199431

1556-5068

Eugene F. Fama, Kenneth R. French,

Auditing, Earnings Management, Governance

Confirming predictions shared by the tradeoff and pecking order models, more profitable firms and firms with fewer investments have higher dividend payouts. Confirming the pecking order model but contradicting the tradeoff model, more profitable firms are less levered. Firms with more investments have less market leverage, which is consistent with the tradeoff model and a complex pecking order model. Firms with more investments have lower long-term dividend payouts, but dividends do not vary to accommodate short-term variation in investment. As the pecking order model predicts, short-term variation in investment and earnings is mostly absorbed by debt.