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Cash flow shocks and permanence in determining payout policy decisions

Broek, Thomas (2017) Cash flow shocks and permanence in determining payout policy decisions.

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Abstract:This paper investigates cash flow shocks, next to the change of multiple control variables, as an additional determinant of payout policy alterations. A regression analysis was performed on two measures of dividend change, share repurchases and total payout change. Also, I hypothesize that firms signal a permanence component of the cash flow shocks by their choice of payout. A one way analysis of variance was used to see whether cash flow shock permanence differs between dividend increasing firms, share repurchasing firms and nonpayers. Additionally, Operating cash flows and non-operating cash flows are incorporated in the one-way analysis of variance to see whether flexibility arguments hold for choices of payout. Cash flow shocks are concluded to have a statistically significant positive relationship with total payout change and changes in dividend to earnings ratio, but not with share repurchases and percentage changes in total dividend paid. The one way analysis of variance resulted in insignificant differences in the permanence of cash flow shocks. Operating and non-operating cash flows were statistically significant, after which an additional post-hoc comparison of means was performed. The results do not support flexibility arguments that dividend increasing firms have relatively higher operating cash flows, whereas repurchasing firms have relatively higher non-operating cash flows.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/72699
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