Version 1
: Received: 17 April 2024 / Approved: 17 April 2024 / Online: 18 April 2024 (13:45:27 CEST)
How to cite:
DABBOUSSI, M. Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia. Preprints2024, 2024041192. https://doi.org/10.20944/preprints202404.1192.v1
DABBOUSSI, M. Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia. Preprints 2024, 2024041192. https://doi.org/10.20944/preprints202404.1192.v1
DABBOUSSI, M. Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia. Preprints2024, 2024041192. https://doi.org/10.20944/preprints202404.1192.v1
APA Style
DABBOUSSI, M. (2024). Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia. Preprints. https://doi.org/10.20944/preprints202404.1192.v1
Chicago/Turabian Style
DABBOUSSI, M. 2024 "Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia" Preprints. https://doi.org/10.20944/preprints202404.1192.v1
Abstract
This paper investigates the impact of debt financing on dividend payments when they face the agency costs of free cash flow. Focusing on a sample of 120 firms listed on the Saudi Stock Exchange during the period 2011-2021. The study found a negative association between agency cost of free cash flow and dividend payment. More importantly, our research highlights the significant role of long-term debt in making more prudent use of free cash flow. The obligation to meet interest and principal payments acts as an incentive for them to steer clear of unprofitable expenses and risky investments. Concurrently, long-term debt imposes restrictive clauses in debt contracts, such as minimum dividend distribution requirements, which further encourage higher dividend payments. Since interest and debt repayments are fixed obligations, using free cash flow for dividend disbursement is considered a more profitable and beneficial approach for shareholders in the context of Saudi Arabia.
Keywords
Debt Structure; Agency Cost of Free Cash Flow; Dividend Payment; Panel Data Analysis
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
