The impact of the free cash flow and the firm’s life cycle on dividend policy: Evidence from Vietnam’s listed firms
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Abstract
The decision on dividend policy is one of the most important decisions in the financial sector which still has inconsistent results leading to various debates among researchers. This study aims to examine the impact of the factor of the free cash flow (FCF) and the firm’s life cycle (RE/TE) on the dividend payout ratio. A panel data of 110 listed firms from the period 2014 - 2020 on Ho Chi Minh stock exchange (HOSE) are used to test the hypothesis. The estimators used to analyze the data are fixed effect model (FEM), random effect model (REM), and then generalized method of moments (GMM) applied to remedy the common errors of panel data. The finding shows that firms in the growth stage will use the free cash flow to invest in a profitable project instead of paying dividends to shareholders. In the meantime, other firm characteristics such as firm size, return on assets, and debt have a positive impact on the dividend payout ratio.
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