Document Type
Article
Publication Date
2-2023
Publisher
Journal of Financial and Quantitative Analysis
Source Publication
Cambridge University Press
Source ISSN
0022-1090
Original Item ID
10.1017/S002210902200076X
Abstract
Firms modify their payout policy in anticipation of future litigation costs. We examine a comprehensive sample of U.S. corporate lawsuits and find that firms facing significant litigation risk pay lower dividends, and in some cases omit dividends while distributing more cash through share repurchases. Litigation risk changes the distribution of payouts but not the total payout yield as the increase in share repurchases offsets the decrease in dividends. Cash-poor firms cut share repurchases when settlement costs are incurred. The results suggest that firms at a higher risk of litigation increase their payout flexibility.
Recommended Citation
Arena, Matteo and Julio, Brandon, "Litigation Risk Management Through Corporate Payout Policy" (2023). Finance Faculty Research and Publications. 152.
https://epublications.marquette.edu/fin_fac/152
Comments
Accepted version. Journal of Financial and Quantitative Analysis, Vol. 58, No. 1 (February 2023): 148-174. DOI. © 2023 Cambridge University Press. Used with permission.