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Payout policy and cash-flow uncertainty

Journal of financial economics, 2009-07, Vol.93 (1), p.88-107 [Peer Reviewed Journal]

ISSN: 0304-405X ;EISSN: 1879-2774 ;DOI: 10.1016/j.jfineco.2008.12.001

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  • Title:
    Payout policy and cash-flow uncertainty
  • Author: Chay, J.B ; Suh, Jungwon
  • Subjects: Cash-flow uncertainty Dividend Repurchase
  • Is Part Of: Journal of financial economics, 2009-07, Vol.93 (1), p.88-107
  • Description: 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.
  • Publisher: Elsevier
  • Language: English
  • Identifier: ISSN: 0304-405X
    EISSN: 1879-2774
    DOI: 10.1016/j.jfineco.2008.12.001
  • Source: RePEc
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