Assessing the impact of dividend policy on the sustainability of distressed firms

Purpose: This paper focuses on the dividend policy management of the firms when they experience a loss at the end of the fiscal year. The objective is to examine how such policy management affects the sustainability of the firm (measured by the Future Sales and Total Factor Productivity) and the wealth of its shareholders (measured by the Stock Returns). Design/Method/Approach: The paper uses firm-level data for the top listed firms in New York exchange stock (NYSE) over the period 2000-2017. The analysis is mainly based on 237 firms that already experienced losses at the end of the fiscal year. The study utilizes the properties of the dynamic panel data, specifically the methodology proposed by Arnello-Bond (1991), to fulfill the objectives of the paper. Findings: The results show that: (a) the distressed firms that distribute dividends at the end of the loss period are able to maintain sustainability and to reach a more favorable wealth situation of their shareholders relative to the firms who abstain to pay (b) the dividend policy during periods of loss is still able to send positive signals about the firm in the market (c) the dividend policy can be considered as a predictive indicator for a sustainable firm whose shareholders can also predict their capital gains. Originality: Agreed upon the literature that the firms during the period of crisis are likely to change their dividend policy, this study offers robust evidence that the dividend policy of distressed firms affects their sustainability (measured by Sales and Total Factor Productivity) and the wealth status of their shareholders (measured by the Stock Returns).