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The Association Between Operating Cash Flows and Dividend Changes: An Empirical Investigation
Author(s) -
Charitou Andreas,
Vafeas Nikos
Publication year - 1998
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00185
Subject(s) - operating cash flow , cash flow , dividend , dividend policy , cash flow forecasting , cash on cash return , cash flow statement , earnings , monetary economics , cash management , economics , business , financial economics , cash and cash equivalents , finance
The Association between earnings and dividend changes has been established since Lintner’s (1956) pioneering work. Subsequent research attempted to establish an association between operating cash flows and dividend changes, given earnings, without success (Simons, 1994). Recently, there has been increased attention in cash flow reporting. Regulatory bodies worldwide have stressed the significance of cash flow information in capital markets. Research on the association between cash flows and dividends has been limited, yielding inconclusive results. The purpose of this study is to re‐evaluate and extend prior studies by examining the incremental ability of cash flows to explain dividend changes, given earnings. We argue that a positive relationship between cash flows and dividend changes should exist due to liquidity and accruals management considerations. The empirical evidence of this study supports that the dividend changes‐cash flow relationship is significantly positive (a) when operating cash flows are low compared to earnings, and (b) when firm growth is moderate.