Excess corporate payouts and financial distress risk

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Firms that follow excessive payout policies (over-payers) are higher on the financial distress spectrum and have lower survival rates than under-payers. In addition, over-payers endure lower future sales and asset growth than under-payers and experience negative abnormal returns in the bond and stock markets. Exogenous import tariff reductions and commodity price jumps reduce the likelihood of overpayment. We interpret this as evidence consistent with financial flexibility considerations, rather than risk-shifting, explaining the decision to overpay. We also find that CEO overconfidence and catering incentives affect overpayment.
Original languageEnglish
Pages (from-to)865-898
Number of pages34
JournalEuropean Financial Management
Issue number5
Early online date16 Oct 2020
Publication statusPublished - 3 Jan 2021


  • financial distress
  • financial flexibility
  • firm survival
  • over-payers
  • payout policy


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