University of Michigan Business School. We received useful comments from S. Gilson, R. Hansen, J. Karpoff, G. Rao, D. Skinner, R. Stulz, J. Warner, J. F. Weston, two anonymous referees, and from workshop participants at USC and UCLA. We are grateful for the research assistance of J. Ammons, T. George, W. Grubbs, C. Lawrence, P. Ramanlal, and P. Van Amson, and for financial support from the Michigan Business School, the J. Ira Harris Center for the Study of Corporate Finance, and the Ernst & Young Foundation.
Dividend Policy and Financial Distress: An Empirical Investigation of Troubled NYSE Firms
Article first published online: 30 APR 2012
1990 The American Finance Association
The Journal of Finance
Volume 45, Issue 5, pages 1415–1431, December 1990
How to Cite
DeANGELO, H. and DeANGELO, L. (1990), Dividend Policy and Financial Distress: An Empirical Investigation of Troubled NYSE Firms. The Journal of Finance, 45: 1415–1431. doi: 10.1111/j.1540-6261.1990.tb03721.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper studies the dividend policy adjustments of 80 NYSE firms to protracted financial distress as evidenced by multiple losses during 1980–1985. Almost all sample firms reduced dividends, and more than half apparently faced binding debt covenants in years they did so. Absent binding debt covenants, dividends are cut more often than omitted, suggesting that managerial reluctance is to the omission and not simply the reduction of dividends. Moreover, managers of firms with long dividend histories appear particularly reluctant to omit dividends. Finally, some dividend reductions seem strategically motivated, e.g., designed to enhance the firm's bargaining position with organized labor.