The Relationship Between Dividend Distributions and Cash Flow Uncertainty: An Empirical Analysis on BIST Manufacturing Industry Firms

Abstract

The aim of this study is to determine the effects of cash flow uncertainty on the amount of dividend distributions by firms and the probability of paying dividends. In line with this aim, we analysed the yearly data of 165 manufacturing firms quoted on Borsa Istanbul (BIST) over 2005-2017 period using panel data and panel logit models. Based on the previous studies, our control variables are determined as the free cash flow, asset size, financial leverage, market-to-book ratio, profitability and retained-earnings-to-total-earnings ratio. The results show that cash flow uncertainty negatively affects the amount of dividends paid and the probability of paying dividends. Accordingly, firms prefer to protect their cash rather than distributing them as dividends when they face uncertainty in cash flows. Furthermore, the results show that free cash flow, asset size, market to book, profitability and retained-earnings-to-total-earnings ratio affect dividends positively, whereas leverage affects it negatively.