| Abstract: | Confirming predictions shared by the trade-off and pecking ordermodels, more profitable firms and firms with fewer investmentshave higher dividend payouts. Confirming the pecking order modelbut contradicting the trade-off model, more profitable firmsare less levered. Firms with more investments have less marketleverage, which is consistent with the trade-off model and acomplex pecking order model. Firms with more investments havelower long-term dividend payouts, but dividends do not varyto accommodate short-term variation in investment. As the peckingorder model predicts, short-term variation in investment andearnings is mostly absorbed by debt. |
