IDEAS home Printed from https://ideas.repec.org/a/mth/ajfa88/v12y2020i2p113.html

Operating Cash Flow and Dividend Changes as a Management Tool for Planning and Making Decision

Author

Listed:
  • Faris Alqadi

Abstract

The main objective of this study was to examine whether operating cash flows have incremental information beyond operating net income in explaining dividend changes for a sample of Jordanian industrial firms listed on the Amman Stock Exchange (ASE) during the period 2010-2016 Arguments for operating cash flow information suggest that it is better than accrual net income in reflecting the firm performance and in measuring the firm liquidity. Both performance and liquidity are viewed as significant factors influencing a firm’s dividend policy. To examine this, operating cash flow, operating net income and lagged dividends were incorporated in a regression model. The results of this model indicated that the only significant variables explaining dividend changes were operating net income and lagged dividends with positive and negative coefficients, respectively. An attempt was also made to address the problem of nonlinearity in the relationship between cash flow and dividend changes. The sample of the industrial firms were divided into two groups (high growth and low growth firms) based on market to book value ratio. The results of the two regression models provided evidence consistent with the superiority of accrual operating net income over operating cash flow in explaining dividend changes. The results of this study suggest that Jordanian industrial firms base their dividend policies on accrual net income rather than on cash flows. One possible consequence of this suggestion is that cash dividends are not internally financed and as a result, this would deteriorate the liquidity and solvency position of a firm.

Suggested Citation

  • Faris Alqadi, 2020. "Operating Cash Flow and Dividend Changes as a Management Tool for Planning and Making Decision," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 12(2), pages 113-113, December.
    • Handle: RePEc:mth:ajfa88:v:12:y:2020:i:2:p:113
    as

    Download full text from publisher

    File URL: https://www.macrothink.org/journal/index.php/ajfa/article/download/17310/13527
    Download Restriction: no
    File URL: https://www.macrothink.org/journal/index.php/ajfa/article/view/17310
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gaver, Jennifer J. & Gaver, Kenneth M., 1993. "Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 125-160, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pavol Durana & Lucia Michalkova & Andrej Privara & Josef Marousek & Milos Tumpach, 2021. "Does the life cycle affect earnings management and bankruptcy?," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 425-461, June.
    2. Alexandre Madelaine, 2024. "Negative Externalities of Regulation: Identity‐relevant Information in Mandatory Short‐selling Disclosures," Abacus, Accounting Foundation, University of Sydney, vol. 60(4), pages 892-934, December.
    3. Jarl G. Kallberg & Yoshiki Shimizu, 2023. "Acquisitions and the Opportunity Set," The Journal of Real Estate Finance and Economics, Springer, vol. 66(4), pages 904-938, May.
    4. Sven-Olov Daunfeldt & Carina Selander & Magnus Wikstrom, 2009. "Taxation, Dividend Payments and Ex-Day Price-Changes," Multinational Finance Journal, Multinational Finance Journal, vol. 13(1-2), pages 135-154, March-Jun.
    5. Huang, Meng & Marsden, Alastair & Poskitt, Russell, 2009. "The impact of disclosure reform on the NZX's financial information environment," Pacific-Basin Finance Journal, Elsevier, vol. 17(4), pages 460-478, September.
    6. Joohyung Ha, 2021. "Bank accounting conservatism and bank loan quality," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 498-532, March.
    7. Vera Lucia M. Cunha & M. Dinis Mendes, 2017. "Financial Determinants of Corporate Governance Disclosure: Portuguese Evidence," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 3(1), pages 21-36, January.
    8. Chakraborty, Atreya & Gao, Lucia Silva & Sheikh, Shahbaz, 2019. "Managerial risk taking incentives, corporate social responsibility and firm risk," Journal of Economics and Business, Elsevier, vol. 101(C), pages 58-72.
    9. Clement Chow & Michael Fung & Kevin Lam & Heibatollah Sami, 2012. "Investment opportunity set, political connection and business policies of private enterprises in China," Review of Quantitative Finance and Accounting, Springer, vol. 38(3), pages 367-389, April.
    10. Michael Raith, 2008. "Specific knowledge and performance measurement," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 1059-1079, December.
    11. Hutchinson, Marion & Gul, Ferdinand A., 2004. "Investment opportunity set, corporate governance practices and firm performance," Journal of Corporate Finance, Elsevier, vol. 10(4), pages 595-614, September.
    12. Yenn-Ru Chen & Carl R. Chen & Chih-Kang Chu, 2014. "The Effect of Executive Stock Options on Corporate Innovative Activities," Financial Management, Financial Management Association International, vol. 43(2), pages 271-290, June.
    13. Muller III, Karl A., 1999. "An examination of the voluntary recognition of acquired brand names in the United Kingdom1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 179-191, January.
    14. Alderson, Michael J. & Betker, Brian L., 1995. "Liquidation costs and capital structure," Journal of Financial Economics, Elsevier, vol. 39(1), pages 45-69, September.
    15. Kenneth J. Klassen & Amin Mawani, 2000. "The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs," Contemporary Accounting Research, John Wiley & Sons, vol. 17(2), pages 227-262, June.
    16. Thomas J. Chemmanur & Imants Paeglis & Karen Simonyan, 2011. "Management Quality and Antitakeover Provisions," Journal of Law and Economics, University of Chicago Press, vol. 54(3), pages 651-692.
    17. Chen, Tao, 2015. "Institutions, board structure, and corporate performance: Evidence from Chinese firms," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 217-237.
    18. Kisser, Michael, 2010. "Do all-equity firms destroy value by holding cash?," Discussion Papers 2010/17, Norwegian School of Economics, Department of Business and Management Science.
    19. E. Cheynel & M. Liu-Watts, 2020. "A simple structural estimator of disclosure costs," Review of Accounting Studies, Springer, vol. 25(1), pages 201-245, March.
    20. Abdul Majid, Jamaliah, 2015. "Reporting incentives, ownership concentration by the largest outside shareholder, and reported goodwill impairment losses," Journal of Contemporary Accounting and Economics, Elsevier, vol. 11(3), pages 199-214.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mth:ajfa88:v:12:y:2020:i:2:p:113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Technical Support Office (email available below). General contact details of provider: http://www.macrothink.org/journal/index.php/ajfa .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.