Dividend policy and cash-flow uncertainty


Journal Article

We explore the role of expected cash-flow volatility as a determinant of dividend policy both theoretically and empirically. Our simple one-period model demonstrates that, given the existence of a stock-price penalty associated with dividend cuts, managers rationally pay out lower levels of dividends when future cash flows are less certain. The empirical results use a sample of REITs from 1985 to 1992 and confirm that payout ratios are lower for firms with higher expected cash-flow volatility as measured by leverage, size and property-level diversification. These results are consistent with information-based explanations of dividend policy but not with agency-cost theories.

Full Text

Duke Authors

Cited Authors

  • Bradley, M; Capozza, DR; Seguin, PJ

Published Date

  • January 1, 1998

Published In

Volume / Issue

  • 26 / 4

Start / End Page

  • 555 - 580

International Standard Serial Number (ISSN)

  • 1080-8620

Digital Object Identifier (DOI)

  • 10.1111/1540-6229.00757

Citation Source

  • Scopus