Huang-Meier, Winifred, Freeman, Mark C. and Mazouz, Khelifa  ORCID: https://orcid.org/0000-0001-6711-1715
2015.
Why are aggregate equity payouts pro-cyclical?
Journal of Macroeconomics
44
, pp. 98-108.
10.1016/j.jmacro.2015.01.005
|
Preview |
PDF
- Accepted Post-Print Version
Download (931kB) | Preview |
Abstract
Our study uses two dynamic stochastic general equilibrium models to explain why external changes in the economic environment result in businesses systematically implementing pro-cyclical equity payout policies. More importantly, this work provides an alternative resolution to examine the cyclicality of payouts that many previous studies have found anomalous. • Both models endogenize low elasticity of investment. • The first model follows the agency conflict literature by assuming that risk-averse managers maximize their own objective function in preference to the share price of the firm. Risk-averse managers dislike taking on risky projects and may reject potentially profitable reinvestment opportunities. This results in greater payouts in benign economic conditions. • The second model includes capital adjustment costs within an economy without agency conflicts. These frictions also inhibit managers from heavily re-investing in a pro-cyclical manner, and the resultant payout policy moves in line with the economy. • Our results suggest that the first model better explains the payout pro-cyclicality anomaly than the second model. Our study highlights the role that agency conflicts can play in real business cycle models.
| Item Type: | Article |
|---|---|
| Date Type: | Publication |
| Status: | Published |
| Schools: | Schools > Business (Including Economics) |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Uncontrolled Keywords: | dynamic stochastic general equilibrium economies; payout policy; business fluctuations; firm objectives; capital adjustment costs |
| Publisher: | Elsevier |
| ISSN: | 0164-0704 |
| Date of First Compliant Deposit: | 30 March 2016 |
| Date of Acceptance: | 20 January 2015 |
| Last Modified: | 16 Nov 2024 00:15 |
| URI: | https://orca.cardiff.ac.uk/id/eprint/70868 |
Citation Data
Cited 2 times in Scopus. View in Scopus. Powered By Scopus® Data
Actions (repository staff only)
 |
Edit Item |
Altmetric
Altmetric