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- W1489416888 abstract "Recent research has found a positive relationship between firm propensity to pay (PTP) and retained-earnings-to-total-equity ratio (RE/TE). Motivated by a lifecycle theory of dividends, researchers have interpreted RE/TE as a proxy for firm maturity stage. This paper shows that the RE/TE ratios are surprisingly persistent. Consequently, while high-RE/TE firms always have a high PTP, low-RE/TE firms (more than 40% of all firms actually start with a negative RE/TE) always have a low PTP and typically do not pay dividends. We present a growth type explanation for this cross-sectional persistence. Firms with low RE/TE ratios tend to be high growth firms; low (and especially negative) RE/TE ratios reflect persistently heavy issues of new equity and large R&D investments that pay off slowly-a phenomenon related to high growth-type, consistent with the prediction by a generalized Myers-Majluf model. We postulate that low-RE/TE firms, if they start paying dividends, may confuse the market and be pooled with low-growth firms that usually pay dividends. Thus, the absence of dividend paying is consistent with high growth-type and does not hinder the investment plans of low-RE/TE or high-growth-type firms. We conclude that it is growth type and not lifecycle that best explains PTP persistence." @default.
- W1489416888 created "2016-06-24" @default.
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- W1489416888 date "2009-01-01" @default.
- W1489416888 modified "2023-09-23" @default.
- W1489416888 title "A Growth Type Explanation for Persistence in Retained Earnings and Propensity to Pay" @default.
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- W1489416888 doi "https://doi.org/10.2139/ssrn.1355804" @default.
- W1489416888 hasPublicationYear "2009" @default.
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