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Payout policy and cash-flow uncertainty

  • Chay, J.B.
  • Suh, Jungwon
Registered author(s):

    The importance of cash-flow uncertainty in payout policy has received little attention in empirical studies, while survey studies such as [Lintner, J., 1956. Distribution of incomes of operations among dividends, retained earnings, and taxes. American Economic Review 46, 97-113.] and [Brav, A., Graham, J., Harvey C., Michaely, R., 2005. Payout policy in the 21st century. Journal of Financial Economics 77, 483-527.] indicate its importance. With worldwide firm-level data, we present evidence that cash-flow uncertainty is an important cross-sectional determinant of corporate payout policy. Our results show that across countries, cash-flow uncertainty, as proxied by stock return volatility, has a negative impact on the amount of dividends as well as the probability of paying dividends. The impact of cash-flow uncertainty on dividends is generally stronger than the impact of other potential determinants of payout policy--such as the earned/contributed capital mix, agency conflicts, and investment opportunities. We also find that the effect of cash-flow uncertainty on dividends is distinct from the effect of a firm's financial life-cycle stage.

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    File URL: http://www.sciencedirect.com/science/article/B6VBX-4VVR20S-1/2/3a19dfb68d7ac3c647e5daf85278cc91
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 93 (2009)
    Issue (Month): 1 (July)
    Pages: 88-107

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    Handle: RePEc:eee:jfinec:v:93:y:2009:i:1:p:88-107
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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