Narrow Results

Using a sample of 17,453 firm-year observations from 1993 to 2017, we find that firms with major customers maintain higher levels of payout flexibility. The positive impact of major customers on payout flexibility is contingent upon cash flow risk, stronger in firms with financial distress, higher cash flow volatility, lower customer switching costs, and greater R&D intensity. The results suggest that major customer-dependent firms tend to pursue more flexible payout policies to maintain or improve their financial flexibility. The results are robust to alternative measures of major customers, the inclusion of additional control variables, and various endogeneity tests.

Buyback programs are often used by firms for different purposes, including distributing excess cash to shareholders and signal that the stock price is underpriced. The first purpose of this chapter is to review studies of buyback programs and to highlight that fundamentals-based hypotheses are problematic in financial turmoil. We will show how buyback programs add value to shareholders while also identifying some situations in which they can destroy value. The second purpose is to present the pros and cons of buyback programs to shareholders, particularly during financial turmoil.