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The Relationship Between Dividend Changes And Cash Flow: An Empirical Analysis

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  • Kathleen Simons

Abstract

It is often assumed that cash flow affects dividend payout. This study provides evidence on the incremental information content of cash flow numbers over Profits and Previous Year's Dividends (Lintner's model) in explaining changes in cash dividends. It further examines whether different measures of cash flow differ in information content for dividend‐increasing and dividend‐decreasing firms. Lintner's model of dividend changes is robust across firms with either dividend increases or decreases. The null hypotheses, that no definition of cash flow adds to the model, could not be rejected for any of the definitions.

Suggested Citation

  • Kathleen Simons, 1994. "The Relationship Between Dividend Changes And Cash Flow: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(4), pages 577-587, June.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:4:p:577-587
    DOI: 10.1111/j.1468-5957.1994.tb00337.x
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    References listed on IDEAS

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    1. Ofer, Aharon R & Thakor, Anjan V, 1987. "A Theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends," Journal of Finance, American Finance Association, vol. 42(2), pages 365-394, June.
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