Investment and Deleveraging Financed by Dividends: Evidence from Japanese Business Groups
52 Pages Posted: 4 May 2015 Last revised: 6 Oct 2020
Date Written: February 12, 2020
Examining a large sample of firms with ownership information from Japan, we find firms that belong to business groups (“keiretsu”) pay more cash dividends than non-keiretsu firms, especially when the affiliated dividend-receiving firms have better investment opportunities, are in financial distress, or have a stronger linkage to the dividend-paying firms. Using exogenous changes to taxes on corporate dividends, difference-in-differences, and falsification tests, we further establish that keiretsu firms’ dividend payouts have a causal impact on receiving firms’ investment and debt policies. Our results highlight the importance of intra-group financing, even for firms in a developed economy.
Keywords: Japan, business group, cross-holding, dividend, investment, debt
JEL Classification: G2; O1; R2
Suggested Citation: Suggested Citation