Payout Flexibility, Firm Innovation and R&D Smoothing
Firms that make payout mainly in the form of share repurchase have greater flexibility in making payouts compared to firms which make payout mainly in the form of dividends. I show that firms with greater payout flexibility have higher levels of innovation and have better quality innovations. Using a Granger-Causality framework, I show that firm innovation has no significant effect on payout flexibility while payout flexibility results in firm innovation. Additionally, I show that firms with greater payout flexibility show higher levels of R&D smoothing and their R&D smoothing is less affected by financing deficits