Distressed Firms and Dividend Reductions

Steven C. Hall, Vipin K. Agrawal, Pushpa Agrawal


We are interested in the effects of dividend reduction decisions on the firms that make them. We compare financial ratios of distressed dividend-reducing firms to distressed firms that did not reduce dividends, of nondistressed dividend-reducing firms to nondistressed firms that did not reduce dividends, and ratios of distressed dividend- reducing firms to nondistressed dividend-reducing firms. Results indicate benefits of dividend reductions to both distressed and nondistressed firms. We find a cost to nondistressed firms, i.e., a drop in the market value of the firm in the year following the dividend reduction.

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DOI: https://doi.org/10.5430/afr.v8n1p222


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