Dividend Smoothing Based on Financial Flexibility and Capital Structure Adjustment

Abstract

Objective: This paper aims to examine dividend smoothing based on financial flexibility and capital structure adjustment. Method: In this study, the data of 120 companies listed in the Tehran Stock Exchange in the period 2009 to 2016 were collected, and the pooled regression model was used to test the research hypotheses. Results: Findings verified the first and second hypotheses of the research. In other words, the results of the first hypothesis indicated that financial flexibility leads to dividends smoothing. The results of the second hypothesis showed significant relationship between capital structure adjustment and dividend smoothing. Finally, the results of the third hypothesis indicated that capital structure adjustment does not have significant effect on the interaction between financial flexibility and dividend smoothing. Conclusion: According to the research findings, there is a tendency to change the method of dividend payments as a result of lack of transparency in the financial status and unfavorable capital structure, so that managers limit changes in dividends to limit the risk of non-transparency.

Keywords

• capital structure adjustment
• dividend smoothing
• financial flexibility