Dividend payouts, cash-flow uncertainty and the role of institutions

Abstract

This study examines the impact of cash-flow uncertainty on corporate dividend payouts and how this impact is shaped by country-level institutional environments. Employing a large sample of 41,157 firms in 49 economies from 1996 to 2018, we document that cash-flow uncertainty has a negative impact on dividend payouts and that this negative relation is more pronounced in economies with stronger institutions. Our results indicate that strong institutions could facilitate information disclosure, reduce government interventions and promote corporate financing opportunities, thus making firms less subject to agency costs and less motivated to disguise their cash-flow risk.