This paper uses a dynamic partial equilibrium model to explain a puzzle of dividend smoothing. In contrast to the Modigliani–Miller theory, I show that firm value depends on payout policy. The analysis implies that firms with more stable dividend stream are more valuable. This explains why...

We propose a novel approach to measure the value that shareholders assign to financial flexibility. In contrast to existing proxies for financial constraints, our measure is market-based, forward-looking and not directly influenced by past financial decisions. We find that firms for which...

We examine corporate payout policy in dual-class firms. The expropriation hypothesis predicts that dual-class firms pay out less to shareholders because entrenched managers want to maximize the value of assets under control and the associated private benefits. The pre-commitment hypothesis...