Organizational Form and Corporate Payout Policy

We examine how organizational form affects corporate payouts. Conglomerates pay out more than pure plays in both cash dividends and total payouts (cash dividends plus share repurchases). Furthermore, their payouts are more sensitive to cash flows compared to pure-play firms. The sensitivity of payouts to cash flow increases as the cross-segment correlation in a conglomerate decreases. Corporate payouts increase after mergers and acquisitions (M&As), especially among M&As in which acquirers and targets are less correlated. These results suggest that the coinsurance among different divisions of a conglomerate allows them to pay out more cash flow to their shareholders than pure-play firms.