The Role of Economic Growth On Corporate Distribution Policy

Open Access
Author:
Regan, James Richard
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • Joseph Randall Woolridge, Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • Jingzhi Huang, Faculty Reader
Keywords:
  • distribution policy
  • dividends
  • share repurchases
  • payouts
Abstract:
Publicly-traded corporations are faced with the responsibility to maximize shareholder wealth. Businesses often run into the situation where their own liquidity position grows beyond comfortable levels, and it becomes prudent to distribute excess retained earnings to shareholders in a profitable and tax-efficient manner. This thesis explores the ways in which cyclical companies distribute gains, both in dividends and share repurchase agreements, throughout various market environments. The underlying hypothesis is that corporations will favor cash dividends during periods of overall economic expansion, but the intrinsic commitment of consistent cash payments will make them less attractive during recessions and firms will favor repurchases as a result. After analyzing the results from a sample of large-cap cyclical firms, I find no such linkage; however, the data suggests that buybacks are considered more heavily following prolonged periods of economic prosperity, while dividends are much more consistently managed.