Impact of Operating Cash Flows on Capital Spending and Dividends

Ali, Mazhar (2015): Impact of Operating Cash Flows on Capital Spending and Dividends.

Abstract

The purpose of this study is to assess the impact of operating cash flows on capital spending and dividends in the cement sector of Pakistan. Operating cash flow and capital spending has become one of the major decision making tool for the companies, investors and stakeholders in this sectors. In this study, operating cash flow has been used as independent variable, while capital spending and the dividends are used as dependent variables. The research approach is quantitative and simple random sampling technique has been used. However, data is collected through financial statements, which consist of 18 companies listed in Karachi stock exchange, and with the help of SPSS, hypotheses are tested. The findings of the study reflected that whether the cement companies in Pakistan give investment priority to the capital expenditures or the shareholders through dividends.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cash flows; dividends
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity

References

1. Advisors, T. R. (2006). Sample Size Table. Retrieved from Research-Advisor: http://www.research-advisors.com/tools/SampleSize.htm

2. Afza, H. H. (2014). Impact of Corporate Cash Flows onDividend Payouts: Evidence from South Asia. Middle-East Journal of Scientific Research, 472-478.

3. Ahmad, B., & Ali, S. B. (2012). Do Individual Investors in Pakistan Prefer Dividends?

4. Ahmad, M., & Ali, S. B. (2008). Technical Analysis in the Stock Markets of Pakistan: A Case of Commercial Banks.

5. Aleem, M. U., Purwani, M., Ali, U., Ali, S. B., & Bhojani, N. (2018). Power of Training and Development on Employee Retention in Pharmaceutical Organization, IBT Journal of Business Studies, 14(2), 148-157.

6. Aleem, M. U., Ali, S. B., Naz, S., & Baig, U. (2021). Recognizing the Influence of Training Needs Analysis on Performance of Business Faculties in Karachi Business Schools. KASBIT Business Journal, 14(2), 37-52.

7. Ali, M., & Ali, S. B. (2014). The impact of working capital management on firm profitability and fixed investment in Pakistan.

8. Ali, M. S. B., Iqbal, M. A., & Qazi, N. S. (2014). Shariah Compliance of Islamic Mutual Funds in Pakistan–Perspective of Small Investors’.

9. Ali, S.B., (2012). Quality of Internal Risk Rating Frameworks at Commercial Banks in Pakistan. University Library of Munich, Germany.

10. Ali, S. B., Khan, Z. S., Shah, Z. A., Ahmed, H., & Aziz, A. (2021). Quality of Internal Risk Rating Framework at Commercial Banks in Pakistan, Elementary Education Online, 20 (5), 7150-7163.

11. Ali, S. B. (2012). Corporate Governance and Accounting Practices in Pakistan.

12. Ali, S. B., Farooq, K., Shah, Z. A., & Burney, S. (2021). Testing the Evidence on Weak Form EMH at Pakistan Stock Market. Turkish Online Journal of Qualitative Inquiry, 12(8).

13. Ali, S. B., Hussain, B. M., Baig, U., Khan, Z. S., Raza, A., & Murad, H. (2021). The Enigma of Capital Structure Theories: An Empirical Investigation Between Peer Corporations in Pakistan. International Journal of Advanced Research in Engineering and Technology, 113-124.

14. Ali, S. B., & Khalidi, M. A. (2020). Valuation of equity securities, private firms, and startups. IBT Journal of Business Studies (JBS), 16(1).

15. Ali, S. B., Khan, Z. S., Shah, Z. A., & Ahmad, M. (2021). Lean Accounting System: Importance and Successful Implementation. Journal of Contemporary Issues in Business and Government| Vol, 27(3), 2388.

16. Ali Zaidi, S. N., & Ali, S. B. (2006). Risk and Scope of Debit Check Card in Competitive Market of Pakistan.

17. Almeida, H., Campello, M., & Weisbach, M. S. (2004, August). The Cash Flow Sensitivity of Cash. The Journal of Finance.

18. Arshad, M. A., Ali, S. B., Masood, K., Syed, A., Jabeen, N., & Sabir, R. I. (2021). The Nexus between Culture and IT Capabilities and Innovation Capabilities: Focusing on Manufacturing Firms in Pakistan. Multicultural Education, 7(9).

19. Arshad, M. A., Ali, S. B., Jafri, S. K. A., Arshad, M. H., & Sabir, R. I. (2021). Effect of Organizational Culture and Information Technology Capabilities on Innovation Capabilities: A Case of Manufacturing Firms. Elementary Education Online, 20(5), 6388-6388.

20. Arshad, M. Z., Ali, S. B., Sabir, R. I., Shahidan, A. N., & Arshad, M. A. (2021). The interrelationship between Orientations and SME’s Performance. Turkish Online Journal of Qualitative Inquiry, 12(7).

21. Baig, U., Hashmi, M. A., Ali, S. B., & Zehara, S. (2020). Exploratory Sequential Mixed Methods in Doctorate Research: Extended Application of Constructivist Grounded Theory. IBT Journal of Business Studies (JBS), 16(2).

22. Baskin, J. (1989). An Empirical Investigation of the Pecking Order Hypothesis. Financial Management, p.26.

23. B. M., Baig, U., Ali, S. B., & Zehra, S. (2020). An Empirical Investigation Factors Influencing upon Investment Decision of Women Entrepreneurs. International Journal of Innovation, Creativity and Change, 11 (11).

24. Brigham, & Houston. (2004). Fundament of Financial Management (10th ed.).

25. Brigham, & Houston. (n.d.). Fundament of Financial Management (10th ed.).

26. Capital Expenditure. (2014). Retrieved 2014, from Investing Answers: http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/capital-expenditures-349

27. Chen, S., & Liao, Z. (2012, February). Free Cash Flow and Over-investment: the Moderating Role of the Characteristics of Independent Director. Advances in information Sciences and Service Sciences (AISS).

28. Chung, R., Firth, M., & Kim, J. (2005). Earnings Management, Surplus Free Cash Flow, and External Monitoring. Journal of Business Research, 766.

29. Daulatzai, M, U. K., Ali, S. B., Jafri, S. K. A., & Awan, M. H. T. (2021). Impact of Green HRM on Environmental Performance: Mediating Role of Employees’ Organizational Commitment, International Journal of Disaster Recovery and Business Continuity, 12(1), 405–412.

30. Fernandez, P. (2006). Cash flow is cash and is a fact: Net income is just an opinion. IESE Business School, 629.

31. Fischer, B. (1976). The dividend puzzle. Journal of Portfolio Management, 5-8.

32. (2014). Global Cement Report. Tradeship Publication Limited.

33. Griffith, C. (2001). Free Cash Flow, Leverage, Investment Opportunities. Journal of Business and Economics.

34. Harford, J. (1999). Corporate Cash Reserves and Acquisitions. Journal of Finance, 1969.

35. Hong, Z., Shuting, Y., & Meng, Z. (2012). Relationship between Free Cash Flow and Financial Performance, Evidence from the Listed Real Estate Companies in China. International Conference on Innovation and Information Management.

36. Hovakimian, A. (2009). Cash Flow Sensitivity of Investment. European Financial Management.

37. Hubbard, G. R. (1998). Capital-market Imperfections and Investment. Journal of Economic Literature, vol.36, pp.193-225.

38. Hussain, Z., & Ali, S. B. (2009). Implementation of Operational Risk Regime: A Case of Commercial Banks in Pakistan.

39. Khurram, W., Jafri, S. K. A., Ali, S. B., & Shah, Z. A. (2021). Survival of the Quickest: Role of Innovativeness and Transformational Leadership in Determining Sustainable Competitive Advantage of Born Global SMEs. Survival, 12(1), 907-929.

40. Lane, M. A. (2014). Business Finance Online. Retrieved 2014, from Zen Wealth: http://www.zenwealth.com/businessfinanceonline/FCF/FCFEquations.html

41. Lang, L. H., Stulz, R. M., & Walking, R. A. (1991). A test of the free cash flow hypothesis. Journal of Financial Economics.

42. Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review, 97-113.

43. Liu, S., & Hu, Y. (2005). Empirical Analysis of Cash Dividend Payments in Chinese Listed Companies. Nature and Science.

44. M, E. T., Meliala, T., Widianti, F., & Maria, E. (2013, April). Examining Free Cash Flow to Manage a Company's Financial Flexibility. International Journal of Trends in Economics Management and Technology (IJTEMT).

45. Manos, R. (2001). Capital Structure and Dividend Policy: Evidence from Emerging Markets. Birmingham: University of Birmingham.

46. McLaughlin, R., Safieddine, A., & Vasudevan, G. K. (1996). The Operating Performance of Seasoned Equity Issuers: Free Cash Flow and Post Issue Performance. Financial Management, 41.

47. Miller, M. H., & Modiglian, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 411-433.

48. Murad, H., Ali, S. B., Baig, U., Raza, A., Ali, S., & Abdullah, A. (2021). Comparative study: conventional and Islamic banking performance in Pakistan. International Journal of Management (IJM), 12(3), 448-459.

49. Operating Cash Flow. (2014). Retrieved november 10, 2014, from Istock Analyst: http://www.istockanalyst.com/glossary/Operating_Cash_Flow

50. Poterba, J. (1995). Capital Budgets, Borrowing Rules and State Capital Spending. Journal of Public Economics, 165-187.

51. Qing, Y., & Gan, S. (2007). The Empirical Research of Correlation between Free Cash Flow. Business Accounting, 21.

52. Riaz, H., Ahmed, H., & Ali, S. A. (2021). Mapping the Impact of Employee Engagement on Job Performance with Mediating Role of Work-Life Balance: An Investigation of Private Sector Organizations in Pakistan, Market Forces Research Journal, 16(2).

53. Richardson, S. (2006). Over-investment of Free Cash Flow. Review of Accounting Studies, vol.11, pp.159-189.

54. Rizvi, A., & Ali, S. B. (2011). Risk Taking Behavior of Investors of Pakistan

55. S. Freund, A. P. (2003). Operating Performance and Free Cash Flow of Assets Buyers. Financial Management, 87.

56. Shah, Z. A., Ali, S. B., Burney, S., & Azhar, K. A. (2021). Student-Perceived Service Quality in Management Science – MS, PhD Programs of TIER 1 Business Schools in Karachi, Multicultural Education, 7 (6).

57. Saunders, M., Lewis, P., & Thornhill, A. (2009). Research Methods for Business Students (V ed.). Pearson.

58. Sindhu, M. I. (2014). Relationship between free cash flow and dividend: Moderating role of firm size. Research Journal of Finance and Accounting, 5.

59. Ullah, Z., Sulaiman, M, A. B. A., Ali, S. B., Ahmad, N., Scholz, M., & Han, H (2021). The Effect of Work Safety on Organizational Social Sustainability Improvement in the Healthcare Sector: The Case of a Public Sector Hospital in Pakistan. International Journal of Environmental Research and Public Health, 18(1), 1-18.

60. Vogt, S. C. (1994). Vogt, S. C. . The Cash Flow/Investment Relatinship:Evidence from U.S. Manufacturing firm. . Journal of Financial Management.

61. Wyatt, I. (2013). Dividends. Retrieved from Wyatt Research: http://www.wyattresearch.com/dividends/

62. Xiaoqiang, T. Z. (2009). Management pay-performance sensitivity, internal cash flow and investment behavior the free cash flow theory and asymmetric information theory. Business Research China.