The Association Between Operating Cash Flows and Dividend Changes: An Empirical Investigation

Andreas Charitou and Nikos Vafeas

Journal of Business Finance & Accounting, 1998, vol. 25, issue 1‐2, 225-249

Abstract: 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.

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://doi.org/10.1111/1468-5957.00185

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:25:y:1998:i:1-2:p:225-249

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().