Impact of shareholder yield on financial distress: using competition and firm size as moderators

Purpose Financial distress (FD) is an unfavorable situation that can have severe negative consequences on a firm. Within the range of multiple micro and macro factors, firm’s dividend policy can impact FD. However, this relationship is yet to be explored. Since shareholder yield (SHY) is a major component of the dividend policy, this study aims to explore the effect of SHY on a firm’s FD. Taking insights from stakeholder theory and dividend signaling theory, we also examined if this relationship is moderated by competition and firm size. Design/methodology/approach The data from Fortune 500 companies over thirteen years (2010–2022) was subjected to panel data analysis (PDA). The analysis particularly takes the quantile panel data model to have a deeper understanding of variable’s association in different scenarios of FD. Findings The findings revealed that the SHY does not directly influence a firm’s FD. However, it is negatively moderated by competition at a lower quantile of financial stability and positively moderated by firm size at all quantiles of financial stability (reverse of FD). It means when competition increases, the shareholder’s yield reduces the financial stability. However, it improves financial stability when firm size increases. Practical implications The findings deliver significant implications for all the stakeholders to consider dividend policy in form of SHY as a crucial element for a firm’s financial soundness. It is very situational to improve or detriment the financial health of the firm when it combines with other factors particularly competition or firm size. Hence, it is important to understand its sensitivity for FD. Originality/value In this study, we evidenced competition and firm size as moderators to SHY and FD relationship thus presenting novel insights. The findings are integrated to stakeholder theory and dividend signaling theory, and thus offer theoretical advancements.