Financial flexibility, risk management, and payout choice

Alice Adams Bonaimé, Kristine Watson Hankins, Jarrad Harford

Research output: Contribution to journalArticlepeer-review

89 Scopus citations


Both risk management and payout decisions affect a firm's financial flexibility - the ability to avoid costly financial distress as well as underinvestment. We provide evidence of substitution between hedging and payout decisions using samples of both financial and nonfinancial firms. We find that a more flexible distribution, favoring repurchases over dividends, is negatively related to financial hedging within a firm, consistent with financial flexibility in payout decisions and hedging being substitutes. Our findings, which are robust to controlling for the endogeneity of hedging and payout choices, suggest that payout flexibility offers operational hedging benefits.

Original languageEnglish
Pages (from-to)1074-1101
Number of pages28
JournalReview of Financial Studies
Issue number4
StatePublished - Apr 2014


  • G32
  • G35

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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