Firm Life Cycle and the Choice of the Form of Payout

Abstract

I examine the emergence and evolution of three distinct groups of payers – firms that distribute cash to shareholders in the form of (i) repurchases, (ii) dividends, and (iii) the mixture of dividends and share buybacks – to understand what determines firms’ preferences for certain distribution techniques. I document that the choice of the form of payout is a reflection of a life cycle stage and evolves as firms alternate between the introductory, growth and maturity stages of their life cycle. My findings imply that viewing paying population of industrial firms as a homogeneous group may be seriously flawed – I document the existence of three distinct groups of payers that display dissimilar firm characteristics and have unique motives for choosing a particular method of distribution.