Verifying the Role of Dividends as a Mediator in the Impact of Cash Flows on Bank Stock Returns on the Iraq Stock Exchange: An Empirical Analysis

Ayad Tareq Al Mamoori, Wan Fadzilah Wan Yusoff and Mohamed Khudari ()
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Ayad Tareq Al Mamoori: College of Graduate Studies, Universiti Tenaga Nasional, Kajang 43000, Selangor, Malaysia
Wan Fadzilah Wan Yusoff: College of Graduate Studies, Universiti Tenaga Nasional, Kajang 43000, Selangor, Malaysia
Mohamed Khudari: College of Graduate Studies, Universiti Tenaga Nasional, Kajang 43000, Selangor, Malaysia

JRFM, 2025, vol. 18, issue 2, 1-13

Abstract: This study aims to evaluate how the effect of COVID-19 and cash flows from operating, investing, and financing activities influence stock returns, with dividends acting as a mediator. Data were gathered from the quarterly financial reports of 20 banks listed on the Iraq Stock Exchange between 1 January 2015 and 31 December 2020. Panel data were analysed using ordinary least squares (OLS). Findings revealed that cash flows have a positive impact on stock returns. Additionally, cash flows from operating and investing activities enhanced dividends, while those from financing activities negatively affected them. Although relatively small, both effects were statistically significant at the 5% level. The analysis also showed that cash flows and dividends account for 51% of the variance in stock returns, indicating a positive yet minor relationship. The results demonstrated a weakly significant negative effect of COVID-19 on both the direct relationship between cash flows and stock returns and the direct relationship between dividends and stock returns. Cash flows and dividends positively influenced stock returns during the initial five years; however, the COVID-19 pandemic in 2020 inversely affected this relationship by 4%, which is a relatively minor impact. Consequently, this research suggests that banks should improve their cash flows by increasing deposits and investing cash reserves to boost profits and, in turn, increase stock returns. Moreover, dividend distributions should play a crucial role in investment strategies, as they attract investors, raise stock demand, and help stabilise the Iraq Stock Exchange.

Keywords: operating cash flows; investing cash flows; investment cash flows; dividends; stock returns; COVID-19 (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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