The Relationship between Cash Flow Volatility and Dividend Payout Ratio: Evidence from Pakistan’s Non-Financial Firms
Abstract
The current study scrutinizes the impact of cash flow volatility on the behaviour of firms regarding dividend payout. It intends to explain how dividend payment is a good source of attraction for investors. A panel data set of 274 non-financial firms of Pakistan was used for analysis covering the period 2006-2018. The estimates of the Generalized Method of Moments (GMM) revealed that volatility in the cash flow of firms adversely affects their dividend payout behavior. It implies that variations in cash flow cause cash shortfall and accordingly, firms resort to cutting their dividend payment. The empirical findings of this study suggest that firms should sustain their financial health by accumulating cash in profitable times. Moreover, the managers should consider cash flow volatility in their risk management decisions.
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