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Potential Dividends And Actual Cash Flow. A Regional Latin American Analysis

Author

Listed:
  • IGNACIO VÉLEZ - PAREJA

    ()

  • MARIANO GERMÁN MERLO

    ()

  • DAVID ANDRÉS LONDOÑO BEDOYA

    ()

  • JULIO ALEJANDRO SARMIENTO SABOGAL

    ()

Abstract

We examine the value market assigns to components of the cash flow to equity including potential dividends. We study non financial publicly traded firms from five Latin American countries. The model includes four variables: market value of equity, dividends paid, change in equity investment and change in liquid assets (potential dividends) and are regressed with actual equity value as dependent variable. Tests applied give robust results. The main conclusions: Market assigns less than one dollar to a future dollar for any of the variables studied. Potential dividends destroy value. A dollar invested in liquid assets has a negative Net Present Value and it is not zero NPV investments. We confirm the agency costs of keeping undistributed cash flows.

Suggested Citation

  • Ignacio Vélez - Pareja & Mariano Germán Merlo & David Andrés Londoño Bedoya & Julio Alejandro Sarmiento Sabogal, 2009. "Potential Dividends And Actual Cash Flow. A Regional Latin American Analysis," ESTUDIOS GERENCIALES, UNIVERSIDAD ICESI, December.
  • Handle: RePEc:col:000129:006872
    as

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    References listed on IDEAS

    as
    1. DeAngelo, Harry & DeAngelo, Linda, 2006. "The irrelevance of the MM dividend irrelevance theorem," Journal of Financial Economics, Elsevier, vol. 79(2), pages 293-315, February.
    2. Lee Pinkowitz & Rohan Williamson & René M. Stulz, 2007. "Cash Holdings, Dividend Policy, and Corporate Governance: A Cross-Country Analysis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 81-87.
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    More about this item

    Keywords

    Cash flow to equity; potential dividends; equity value.;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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