Fraction of firms' costs that are fixed decide its payout policy

What is it about?

Costs of a firm are of two types, fixed (that don't change as a firm produces more - cost of buying a machine) and variable (that change - raw materials). I find that the fraction of costs that are fixed play a role in deciding whether a firm returns money to shareholders via dividends or share repurchases. When a firm has high fixed costs, all else equal, it doesn't have more money for dividends or repurchases. For the few firms that do pay back return more via share repurchases.

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Why is it important?

Researchers think earnings and investment opportunities decide the payout policy. I find that the cost structure of a firm plays an important role too.