A Study on the Effect of Free Cash Flow and Profitability Current Ratio on Dividend Payout Ratio: Evidence from Tehran Stock Exchange

Management Science Letters 4 (2014) 63–70

8 Pages Posted: 10 Jul 2014

See all articles by Dr.Hossein Parsian

Dr.Hossein Parsian

Plan and Budget organization of Iran

Amir Shams Koloukhi

Islamic Azad University - Young Researchers and Elites Club

Date Written: November 28, 2013

Abstract

Decision making about dividend payout is one of the most important decision that companies should encounter. Identifying factors that influence dividends can help managers in making an appropriate dividend policy. In the other side, companies’ dividend payouts over time and with a stable manner may influence on stock price, future earnings growth and finally investor's evaluation about owners' equity. Hence, investigating the factors influencing dividend payout ratio is of high importance. In this research, we investigate the effects of various factors on dividend payout ratio of Tehran Stock Exchange (TSE) listed companies. We use time series regression (panel data) in order to test the hypothesis of this study. This study provides empirical evidences by choosing a sample of 102 companies over the time span of 2005-2010. The result shows that independent variables of free cash flow and profitability current ratio have negative and significant impact on dividend payout ratio; whereas, the independent variable of leverage ratio has a positive and significant impact on dividend payout ratio. The other independent ratio such as size of the company, growth opportunities and systematic risk do not have any significant influence on dividend payout ratio.

Keywords: Dividend payout ratio, Free cash flow, Profitability current ratio, Leverage ratio, Tehran Stock Exchange (TSE)

JEL Classification: G10, M00

Suggested Citation

Parsian, Hossein and Shams Koloukhi, Amir, A Study on the Effect of Free Cash Flow and Profitability Current Ratio on Dividend Payout Ratio: Evidence from Tehran Stock Exchange (November 28, 2013). Management Science Letters 4 (2014) 63–70, Available at SSRN: https://ssrn.com/abstract=2464012

Hossein Parsian (Contact Author)

Plan and Budget organization of Iran ( email )

Tehran, Tehran
Iran

Amir Shams Koloukhi

Islamic Azad University - Young Researchers and Elites Club ( email )

Torbat-e-Jam Branch
Torbat-e-Jam
Iran

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