The relationship between the life cycle of the company and free cash flow and dividend policies of listed companies in Tehran Stock Exchange

Tayeb Hajebi, Farah Dokht Ebadi


Dividend is an important issue that has long been of interest for financing researchers. Dividend policy could affect directly on shareholders expectations, free cash flow, method of financing, financial structure, and activity continuity of the firm. Cash management and investment opportunities, due to the life cycle, are the information tools that are considered by managers and investors and are extremely important in maximizing shareholders’ wealth, raising the incentive to invest and the internal financing. Free cash flow is essential for the growth of the firms. Firms that are in the growth phase and encounter with investment opportunities frequently, by spending the free cash flow and lack of dividends, can provide the required capital for the investment. Therefore, dividend policy of the firms is affected by the life cycle and free cash flow of the firms. This study examined the relationship between the companies’ life cycle and the free cash flow and their dividend policies. For this purpose, a sample of 120 companies listed in Tehran Stock Exchange for the 5-year period of 2008 to 2011 is discussed. To verify the hypotheses, a multivariate regression model is used. Hypotheses test results indicate that there is a significant relationship between the life cycle of the companies and their dividend policies. There is also a significant relationship between the companies’ free cash flow and dividend policies.

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