The CEO Authority Effect on Dividend Payout Probability: The Role of Profitability and Cash Flow Volatility

Dividend policy is one of the most important topics in financial literature. CEOs with a high level of authority are motivated to use dividends payout as a strategy to build a reputation in capital markets, aiming to obtain external financing on favorable terms. However, the expected net 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 study aims to investigate the effect of CEO authority on the dividends payout probability in the conditions of low profitability and high volatility of cash flow. In doing so, 128 companies listed on the Tehran Stock Exchange were examined from 2014 to 2021. The results show that the CEO authority has a negative and significant effect on the payment and increase of dividends. Furthermore, low profitability and high volatility of cash flow increase the negative effect of the CEO's authority on the increase of dividends. However, this factor does not have a significant moderating effect on the relationship between CEO authority and dividends payout. Additionally, financial limitations do not have a significant moderating effect on the relationship between CEO authority and payment and increase of dividends.