Does Payout Choice affect R&D Spending?

This paper investigates how payout choice (dividend vs. repurchase) affects firm’s R&D spending. Firms that make payouts mainly in the form of share repurchases have greater flexibility in making payout decisions compared to firms that make payouts mainly in the form of dividends. Using system GMM, I show that firms with greater payout flexibility show higher levels of R&D smoothing irrespective of firm size or maturity. The results are robust to alternate measures of payout flexibility and sample splits by time