Free Cash Flow, Dividend Policy and Leverage: Do Growth Opportunities Matter? Empirical Evidence From Egyptian Stock Exchange

Purpose – The purpose of this study is to examine the relationship between free cash flow and dividend policy in an emerging capital market - Egypt.
Design/Method – Using pooled cross-sectional data from the top 50 listed Egyptian companies during 2013 - 2016, this study examines the relationship between free cash flow and dividend policy as well the moderating role of growth opportunities.
Findings – An insignificant association was found between free cash flow and dividend size as well with dividend payouts after controlling for several firm-level characteristics that could influence corporate’s dividend policy. The study also found that, in the presence of growth opportunities, the relationship of free cash flow and dividend size was not affected, suggesting that growth opportunities did not play a moderating role, same conclusion for dividend payouts. Further, the study found significant positive association between the level of free cash flow and financial leverage. Overall, the results suggested that financial leverage is a better control mechanism than dividends to reduce the agency costs of free cash flow in the Egyptian companies.