The Relationship between Financial Flexibility and Dividend Policies in the Companies Listed in Tehran Stock Exchange between 2006 and 2009

Abstract

This study is an attempt to assess the relationship between financial flexibility theory and dividend policies in the companies listed in Tehran Stock Exchange between 2006 and 2009. If management wants to provide the funds required for investment in companies’ projects through enhancing financial flexibility, it must ensure the profitability of these projects for stockholders. In the present study, hypothesis testing is done in two sections. In the first section, mean difference between various groups is examined using sectional data, SPSS, T-test, Kruskal Wallis, and Wilcoxon test. In the second section, hypotheses were tested using panel data, Eviews, least squares regression, and fixed effects approach. In sum, results of the first section indicate that dividend is lower in the periods of stock market price. It was also determined that companies with less stock have further dividend payout regardless of the status of stock market. In addition, it was shown that companies with higher dividend have further return on stock at the time when market price is reduced. Results indicate a negative relationship between the sustainable growth rate of companies and the amount of dividend. However, no evidence was obtained regarding the relationship between non-systematic risk and dividend. Based on the results of the second section and using panel data, indirect relationship between systematic risk and sustainable growth rate and direct relationship between assets and dividend ratio were approved. No significant relationship was observed with corporate size. Results indicate that there will be a direct relationship between risk and ratio of dividend payout when return on assets is more than the rate of sustainable growth. In general, results of this study approve and correspond to the theory of financial flexibility and dividend policies