The effect of CEO power on dividend payout probability: The role of profitability and cash flow volatility

Abstract

Dividend policy is one of the most important topics in financial literature. One of the motivations of powerful CEOs to pay dividends is to build a reputation in the capital markets in order to obtain foreign financing on favorable terms. However, the net expected value of such a reputation depends on the likelihood of external financing, which is associated with low profitability and high volatility of cash flows. Therefore, this research aims to investigate the effect of the power of the CEO on the probability of paying dividends in the conditions of low profitability and high volatility of cash flow. In this regard, 128 companies admitted to the Tehran Stock Exchange were examined between 2014 and 2021. The results show that the power of the CEO has a negative and significant effect on the payment and increase of dividends. Also, low profitability and high volatility of cash flow increase the negative effect of the CEO's power on the increase of dividends. But it does not have a significant moderating effect on the relationship between the power of the CEO and the payment of dividends. Financial constraints also do not have a significant moderating effect on the relationship between the power of the CEO and the payment and increase of dividends

Keywords

• dividend
• profitability
• ceo power
• financial constraint
• cash flow volatility