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Dividends, investment and cash flow uncertainty: Evidence from China

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  • Deng, Lu
  • Li, Sifei
  • Liao, Mingqing
  • Wu, Weixing

Abstract

This paper investigates the relation between dividends and investment for Chinese listed firms in a condition of cash flow uncertainty. We find that facing cash flow uncertainty, Chinese firms neither cut dividends nor cut investment, but maintain extremely high level of investment. External financing is the only instrument that resolves cash flow uncertainty. We further find that there is an “N-shaped” nonlinear relation between dividends and investment given different levels of cash flow uncertainty. These results can be explained by China's special institutional settings in which firms have strong incentives to spend capital on both dividend payout and make investment.

Suggested Citation

  • Deng, Lu & Li, Sifei & Liao, Mingqing & Wu, Weixing, 2013. "Dividends, investment and cash flow uncertainty: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 112-124.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:112-124 DOI: 10.1016/j.iref.2012.09.005
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    Cited by:

    1. Su, Zhong-qin & Fung, Hung-Gay & Huang, Deng-shi & Shen, Chung-Hua, 2014. "Cash dividends, expropriation, and political connections: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 260-272.
    2. Chin-Sheng Huang & Chun-Fan You & Hueh-Chen Lin, 2014. "Dividend-Yield Trading Strategies: Evidence from the Chinese Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 382-399.
    3. Mishra, Anil V. & Ratti, Ronald A., 2014. "Taxation of domestic dividend income and foreign investment holdings," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 218-231.
    4. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2014. "Controlling shareholder, split-share structure reform and cash dividend payments in China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 339-357.
    5. Yen, Ju-Fang & Chen, Yan-Shing & Shen, Chung-Hua & Lin, Chih-Yung, 2014. "Why do firms allow their CEOs to join trade associations? An embeddedness view," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 47-61.
    6. Deng, Lu & Li, Sifei & Liao, Mingqing, 2017. "Dividends and earnings quality: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 255-268.
    7. Bradford, William & Chen, Chao & Zhu, Song, 2013. "Cash dividend policy, corporate pyramids, and ownership structure: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 445-464.
    8. Zhao, Yu Fang & Xia, Xin Ping & Tang, Xiang Xi & Cao, Wei & Liu, Xiao Yuan & Fan, Ying Han, 2015. "Private placements, cash dividends and interests transfer: Empirical evidence from Chinese listed firms," International Review of Economics & Finance, Elsevier, vol. 36(C), pages 107-118.

    More about this item

    Keywords

    Dividend; Investment; Cash flow uncertainty;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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