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Dividend Policy and Cash-Flow Uncertainty

  • Michael Bradley
  • Dennis R. Capozza
  • Paul J. Seguin

We explore the role of expected cash-flow volatility as a determinant of dividend policy both theoretically and empirically. Our simple one-period model demonstrates that, given the existence of a stock-price penalty associated with dividend cuts, managers rationally pay out lower levels of dividends when future cash flows are less certain. The empirical results use a sample of REITs from 1985 to 1992 and confirm that payout ratios are lower for firms with higher expected cash-flow volatility as measured by leverage, size and property-level diversification. These results are consistent with information-based explanations of dividend policy but not with agency-cost theories. Copyright American Real Estate and Urban Economics Association.

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Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 26 (1998)
Issue (Month): 4 ()
Pages: 555-580

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Handle: RePEc:bla:reesec:v:26:y:1998:i:4:p:555-580
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