The relationship between investment and dividend in cash flow uncertainty condition a vietnam case

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL HO CHI MINH CITY STUDIES VIETNAM THE HAGUE NETHERLANDS VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE RELATIONSHIP BETWEEN INVESTMENT AND DIVIDEND IN CASH FLOW UNCERTAINTY CONDITION: A VIETNAM CASE By TRAN THI NHAT LINH MASTER OF ARTS IN DEVELOPMENT ECONOMICS Ho Chi Minh City, April 2017 ABSTRACT This paper aims to show the relationship between investment and dividend in cash flow uncertainty condition by using data of 246 Vietnamese listed firms from 2011 to 2014 The study shows that in the relationship between investment and dividend does not significant in both two alternative measurement methods of cash flow uncertainty However, in the case cash flow uncertainty is measured by cash flow shortfall, the relationship between investment and dividend in each level of shortage is significant at 10% Besides, the study shows that Vietnamese firms tend to reduce liquid assets to deal with cash flow shortage and Vietnamese firms tend to invest in other firms despite of they are facing with cash flow shortfall Keywords: dividend, investment, cash flow shortfall, Vietnamese firms i ACKNOWLEDGEMENT Firstly, I would like to sincerely thank Dr Vu Viet Quang I am grateful to his enthusiastic instruction crucial advice and valuable guidance during the time I worked with this thesis In addition, I would like to thank you to all professors and staff of Vietnam-Netherlands Program as well as classmate for their help during my thesis process Finally, I would like to express my gratitude to my family, who have supported me with the master program and motivated me to finish this thesis ii ABBREVIATIONS HoSE: Ho Chi Minh Stock Exchange OLS: Ordinary least squares GLS: Generalized least squares FE: Fixed Effect RE: Random Effect WLS: weighted least squares iii TABLE OF CONTENTS CHAPTER : INTRODUCTION 1.1 Problem Statement 1.2 Research Objectives 1.3 Data and Methodology 1.4 Thesis Structure CHAPTER : LITERATURE REVIEW .5 2.1 Literature review 2.1.1 The tradeoff theory between dividend and investment 2.1.2 Agency cost theory of free cash flow 2.2 Empirical research related to the link between investment and dividend 2.2.1 Separated results 2.2.2 Dependence results 2.2.3 Others finding 2.4 Summary 12 CHAPTER : DATA AND METHODOLOGY 13 3.1 An overview of dividend, investment in Vietnam 13 3.1.1 An overview of dividend 13 3.1.2 An overview of investment 14 3.2 Analytical framework 15 3.3 Sample data and collection 17 3.4 Methodology model 17 3.4.1 Empirical model 17 3.4.2 Variable measurements 18 3.5 Econometrics framework 21 3.5.1 Ordinary Least Square estimation 21 3.5.2 Fixed effect estimation 21 iv 3.5.3 Random Effect estimation 22 3.5.4 OLS, FE, and RE, which one is better? 22 3.5.5 Other tests 23 CHAPTER : EMPIRICAL RESULTS AND DISCUSSION 25 4.1 How can firms solve cash flow shortfall 25 4.2 Empirical results and discussion 35 4.2.1 Cash flow uncertainty is measured by CFVol 35 4.2.2 Cash flow uncertainty is measured by cash-short 39 4.2.3 Regression results 40 4.3 Results summary 42 CHAPTER : CONCLUSION 43 5.1 Main conclusion 43 5.2 Implication 43 5.3 Limitation 44 REFERENCES .45 APPENDICS 48 v LIST OF TABLES Table 3.1: Variables definition 20 Table 4.1: Description statistics of the main variables (in billions VND or times) 26 Table 4.2: The main methods to deal with cash flow uncertainty (based on cash flow shortfall - in billions VND) 27 Table 4.3: The main methods to deal with cash flow uncertainty (based on cash flow shortfall) – with negative sample and positive sample - in billions VND 31 Table 4.4: The main methods to deal with cash flow uncertainty (based on cash flow volatility) – with negative sample and positive sample - in billions VND 33 Table 4.5: The correlation maxtric and variance inflating factor (VIF) (CFVol) 38 Table 4.6: The results of Modified Wald test and Wooldridge test 39 Table 4.9: Regression results 41 vi LIST OF FIGURES Figure 3.1: Number of listed firms payout dividend 14 Figure 3.2: Number of Vietnamese listed firms use internal fund (retain earnings) 15 Figure 3.3: Conceptual Framework 15 Figure 4.1: Investment – dividends sensitive with CFVol rank 36 Figure 4.2: Investment – dividends sensitive with cash short rank 39 vii CHAPTER : INTRODUCTION 1.1 Problem Statement Investment and dividend policy decisions are two of the most important missions fulfilled by managements In a perfect market, investment and dividend decision are a separation because firms can raise external fund (Miller & Modigliani, 1961) In an imperfect market, firms cannot obtain funds easily because of the limit resource, thus, investment and payout policy are the most difficult decisions of manager and firms Additionally, maximizing firm value and stockholder wealthy are the main duties of administrators; however, sometimes there is confliction between these duties, especially in cash flow uncertainty conditions To be specific, firms usually use profit after tax to pay out a dividend and reinvest in projects to create value in the future, but in cash flow shortfall case, the manager will take into account for cutting the dividend and investment, or raising external funds In fact, firms can choose no payout a dividend when the director boards believe that firms will have more advantages to increase profit as well as a dividend in the next business cycle by expanding investment activities associated with shareholders’ dividend Nevertheless, these decisions are not always right; Benjamin and Dodd (1934) gave some reasons to protest ones Moreover, dividend payout is not only reflected shareholder wealth, but also a signal for firms’ performance (Fairchild, 2010) Therefore, there is the tradeoff between dividend and investment decision and managers have to choose the relevant plans in order to increase shareholders’ wealth and firm value As the results, dividends and investment decision not separate and must be jointly determined In particular, investment and dividend decision are affected by many factors, such as agency cost, financial market Therefore, therearemany studies related to investment and dividend decision over the world but given different results Some studies claimed that dividend is priority decision (Lintner, 1956), but another one supposed that investment and dividend decision are made simultaneously and interdependently (Brav et al., 2005) To clarify the relationship between investment and dividend, some authors research this relation in a finance constrained (Holt, 2003), financial flexibility (Daniel et al., 2008) or uncertainty cash flow conditions (Deng et al., 2013) Overall, firms have to choose between investment and dividend decisions in conditions of cash flow shortfall Firms with cash flow shortfall are often difficult to raise external funds and the cost of capital is higher Therefore, this relationship is expressed more clearly in firms with uncertainty cash flow In Vietnam, it is difficult to clarify the relationship between financial decisions, especially the relationship between investment decisions and dividend decision As reviewed by Lý, H., & Thị, T (2013), Vietnamese firms’ administrators agree on the importance of dividend policy, but they are not clear how investment policy will affect dividend policy and vice versa Almost previous studies related to developed countries but the effect of the financial decisions in each region is different with others; therefore, it is necessary to investigate the association between dividend and investment decision in an emerging financial market like Vietnam In this study, the linkage between investment and dividend is the main research objective The results show the investment – dividend-sensitive as well as the change of investment and dividend when cash flow volatility Besides, empirical results also show the way Vietnamese firm resolve cash flow shortfall There are a lot of previous studies that research the connection between investment and dividend with different results In particular, some studies show the independent relationship between dividend and investment (Morgan & Saint-Pierre, 1978), some papers illustrate the interdependence between them (Minton & Schrand, 1999; Daniel et al., 2008) However, Vietnam financial market still immature and incomplete, as well as there are few studies that link financial decisions in Vietnam, so that the results of this study maybe bring some suggestions for administrators 1.2 Research Objectives In general, this paper focuses on the link between investment and dividend of Vietnamese firms in uncertainty cash flow In addition, the study aims to find out the methods that Vietnamese firms use to deal with cash flow shortage Firstly, this paper will determine variables that related to investment, dividend and cash flow based on the method of empirical study, especially, cash flow uncertainty is measured by methods: cash flow shortfall and cash flow volatility Secondly, based on the magnitude of cash flow shortfall, data is divided into groups and variables are analyzed in each group or combined to others Statistic results will provide the evidence of the main channel to solve the shortage of cash flow of Vietnamese firms Secondly, investment, dividend, and cash flow will be placed in relation to other factors to run the regression in each level of cash flow shortfall The coefficient of the dividend is uncertainty is illustrated in horizontal axis while investment – dividends sensitive is described in thevertical axis Dividend – investment sensitive has negative value in group 1, which include firms with cash flow surplus or slightly shortfall Sensitive ratio shifts from negative to positive and reaches a peak when shortfall gets the highest level With cash short, dummy variables are used and dummy1 equal if cash short level lower and dummy equal if cash short higher and lower b Diagnostic test Table represents the correlation and variance inflating factor (VIF) when cash flow uncertainty is measured by cash flow shortfall.The results show the correlation value between dummycs1 and cashrank is -0.86, as well as VIF value of dummycs1 is 12.24 It shows the presence of collinearity in this regression 4.2.3 Regression results The interaction variables are used to clarify the impact of dividends and rank of cash flow shortfall on investment as well as how did the level of shortfall, dividends and effect on investment Based on empirical models, relationship between investment and dividend is estimated as follow: I_TA = α0 + α1*DIV + α2*Rank + α3*Dum1 + α4*Dum2 + DIV *(α5*Rank+ α6*Dum1 + α7*Dum2) +Rank*(α8 *Dum1 + α9*Dum2) + DIV*Rank * (α10*Dum1 + α11 *Dum2) + α12*Extcash + α13*CF + α14*Lag (I_TA) + α15*MB+ α16 *Size + α17*ROA+ α18*LEV+ α19*State+ ε (1) Table 4.9 shows the empirical results across different models First, the regression results as reported in the first three columns which use cash flow volatility as a measure of cash flow uncertainty, statistically propose that there is no significant relationship between dividend and firm’s investment activities no matter what the explanatory variable of dividend is or does not interact with the CFVol ranks and the level of CFVol Moreover even, if cfrank is excluded in model 2, and dummycf2 is removed from model and the usage of that interaction variable, the results are still consistent in which investment does not have a significant relationship with dividend with or without the control of cash flow volatility These results agree with description statistics in which the volatility of investment and dividends are independent with cash flow 40 volatility In models reported in the first three columns with CFVol as a main explanatory variable, investment in a previous year, firm size and dummy variable of cash flow volatility are highly significant at more than 99% confident level (p-value < 0.001) In addition, dummycf2 have a negative relationship with investment while firm size and lag i_ta have a positive relationship with investment Moreover, state variable has a positive sign and is statistically significant at 5% level in all three models, while dummycf1 is only positive significant in model Table 4.7: Regression results Variable div cfrank extcash cf lagi_ta mb size roa lev state dummycf1 dummycf2 div_cfrank div_dummycf1 div_dummycf2 rankcf_dummy1 rankcf_dummy2 cashrank dummycs1 dummycs2 div_cashrank div_dummycs1 div_dummycs2 cashrank_dummy1 cashrank_dummy2 _cons Cash flow uncertainty is measured by cash flow volatility CF1 CF2 CF3 -0.1522 -0.1522 -0.1522 -0.0004 -0.0004 -0.0000 -0.0000 -0.0000 -0.0000 -0.0000 -0.0000 -0.0947*** -0.0947*** -0.0947*** -0.0005 -0.0005 -0.0005 -0.0071*** -0.0071*** -0.0071*** -0.0006 -0.0006 -0.0006 -0.0015 -0.0015 -0.0015 -0.0070* -0.0070* -0.0070* -0.0106 -0.0122* -0.0106 -0.0234*** -0.02348 -0.0245 -0.0245 -0.0245 -0.01285 -0.01285 -0.01285 -0.0643 -0.0643 -0.0643 -0.0004 -0.0078*** Cash flow uncertainty is measured by cash flow shortfall CS1 CS2 CS3 -0.2629 -0.2629 -0.2629 -0.0000 -0.0000 -0.1130*** -0.0001 -0.0063*** -0.0003 -0.0027 -0.0092*** -0.0035 -0.0022 -0.0002 -0.1194** -0.2619 -0.0124 -0.1546*** -0.0000 -0.0000 -0.1106*** -0.0001 -0.0057*** -0.0005 -0.0028 -0.0096*** -0.0113 -0.0046 -0.1183** -0.2553 -0.0120 -0.0058 -0.1530*** -0.1546*** -0.1375** -0.1332** Legend: * p < 0.05; ** p < 0.01; *** p < 0.001 -0.0000 -0.0000 -0.1130*** -0.0001 -0.0063*** -0.0003 -0.0027 -0.0092*** -0.0035 -0.0022 -0.1194** -0.2619 -0.0124 -0.0001 -0.1375** Source: Author’s calculation In the next three columns, cash flow uncertainty is measured by cash flow shortfall Similar to the first three models, the rank of cash flow shortfall and interact variable between it and dummy variables is excluded in various models respectively The results show that dividend has a negative link with investment but it does not significant However, investment has a positive significant relationship with dividend under the governed by the level of cash flow 41 shortage as 10% This indicated that in terms of cash flow fluctuations directly affect the dividend, the dividend and investment relationship in the same direction Similarly, the first three models, lag i_ta, state and firm size have highly significant as p < 0.001 Surprisingly, in all models, external financing and operating not have a significant relationship with investment even though they are thought to be an effective channel to raise funds to support firm’s new investment opportunities This result is totally different from Deng et al (2013)’s findings 4.3 Results summary Firstly, this study shows that Vietnamese firm drew down cash holdings as the main method to resolve shortfall Besides that, non-operating cash flow is also used but not unremarkable Surprisingly, Vietnamese firms tend to invest in other companies as debt investment whether they are facing with the shortfall The next finding of this study is that the relationship between investment and dividend of Vietnamese firms not control by cash flow volatility but cash flow shortfall In detail, the change in cash flow does not have asignificant influence on the change of investment and dividend Moreover, the relationship between dividends and investment is significantly when there is a direct adjustment of cash flow shortage to dividends 42 CHAPTER : CONCLUSION In this chapter, the main findings are presented First, this study clarifies the main method that Vietnamese firms deal with cash flow shortage and the relationship between investment and dividend under cash flow uncertainty The findings of thesis not consistent with previous researches (Miller & Modigliani, 1961, Deng et al., 2013) The study use the final sample data including 246 firms in HoSE in the period from 2011 to 2014 to find out the react of Vietnamese firms as follow 5.1 Main conclusion Firstly, the study shows that Vietnamese firms tend to reduce liquid assets (cash and cash equivalents) to deal with cash flow shortage Besides that, non-operating cash flow is also used to cover shortage but unremarkable The result is also represent Vietnamese firms tend to invest in other firms despite of they are facing with cash flow shortfall In addition, this thesis shows the different view to Deng et al (2013) that cash flow volatility and cash flow shortfall not correlation Moreover, cash flow volatility does not reflect the cash flow shortage Vietnamese firms Secondly, the study shows that in the relationship between investment and dividend does not significant in both two alternative measurement methods of cash flow uncertainty However, in the case cash flow uncertainty is measured by cash flow shortfall, the relationship between investment and dividend in each level of shortage is significant at 10% In other words, there is a relationship between investment and dividend in each level of cash flow shortfall The study also shows that the status of firms, firm size and previous investment have significant relationship with investment 5.2 Implication As the results of study, Vietnamese firms tend to reserve cash and use cash as main channel to deal with cash flow shortage However, there are many researches (Baumol, 1952, Opler et al., 1999) find out that the weaknesses of holding too much money is increased costs Therefore, managers should adjust the level of cash holdings as well as use other methods which have lower cost and more efficient 43 Besides that, the findings show that Vietnamese firms tend to invest in other companies; it can lead to investing too much in other business lines, causing many risks for Vietnamese firms Therefore, managers should focus on identifying main investment sectors and have investment plans to avoid financial problems In addition, the study shows the negative significant relationship between investment and dividend in each cash flow shortage level Besides that, firm size, market value of firm also have effect to firms’ investment Therefore, managers can base on the firms’ situation and expected dividend of shareholders to build investment plans 5.3 Limitation Firstly, due to the missing data so the sample data just is collected in four years lead to the observation period shorter than other researches Therefore, there cognition of firms’ reaction to cash flow, investment, dividends and other firms’ performance may be omission Secondly, in order to clarify the relationship between investment and dividend in cash flow uncertainty condition more clearly, the sample data should be divided in groups, including payout dividend by cash, payout dividend by share and does not pay dividends Thirdly, endogeneity problem due to omit variables or the simultaneous causality are considered as limitation of this study So that this problem could be seen as an issue which could be solved in future researches 44 REFERENCES Baumol, W J (1952) The transactions demand for cash: An inventory theoretic 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-1.277e-14 -1.663e-06 00274128 -.00037177 36259834 27981017 -.06196123 -.01063503 -.00063737 b The shortfall is measured by cash flow shortfall Variable model1 model2 model3 model4 model5 div extcash cf size mb lagi_ta roa lev state _cons -.00185108 -5.946e-15 -.00159917 00409701 00165467 31592702 27884897 07170562 -.00578869 -.10698445 -.31632543 -3.297e-15 -.00012284 -.00381029 00293954 49891488 24527554 -.00787858 0008042 13470861 -.07199555 2.511e-15 9.117e-06 -.00338064 01776972 12929013 10640789 13589025 05109435 03713267 23310651 7.458e-15 -7.863e-06 00094653 -.01291003 25195787 02909669 00641468 -.00124459 0047441 30408932 1.057e-14 9.081e-06 0035242 -.00092558 09146939 -.00162109 -.00909721 -.00688514 -.05530564 48 Multicollinearity test a The shortfall is measured by cash flow volatility ita div cfrank dummycf1 dummycf2 extcash cf lagi_ta mb size roa lev state lev state ita div 1.0000 -0.0142 -0.0053 0.0153 -0.0529 -0.0132 0.0192 0.2638 -0.0132 0.0274 -0.0066 -0.0084 0.0813 1.0000 -0.0215 0.0256 -0.0156 -0.0036 0.0015 0.0074 -0.0024 0.0270 0.0021 0.0045 0.0431 lev state 1.0000 0.0243 1.0000 cfrank dummycf1 dummycf2 extcash 1.0000 -0.8677 0.3530 0.0534 0.0462 -0.0443 0.0515 -0.0826 0.0217 0.0062 -0.0921 Variable VIF 1/VIF dummycf1 cfrank dummycf2 size state roa lev mb lagi_ta extcash cf div 7.16 5.12 2.02 1.06 1.03 1.03 1.02 1.01 1.01 1.01 1.01 1.00 0.139656 0.195289 0.495014 0.944082 0.967099 0.968848 0.981592 0.985525 0.985617 0.987100 0.992257 0.996839 Mean VIF 1.96 1.0000 -0.6112 -0.0633 -0.0375 0.0523 -0.0485 0.0499 -0.0390 -0.0076 0.1018 1.0000 0.0290 0.0476 -0.0286 -0.0069 -0.0078 0.0673 0.0020 -0.0287 49 cf lagi_ta mb size roa 1.0000 -0.0009 1.0000 -0.0117 0.0296 1.0000 0.0927 0.0011 -0.0125 1.0000 0.0156 -0.0301 0.0233 0.0290 1.0000 -0.0068 -0.0001 -0.0078 -0.0016 -0.1567 1.0000 -0.0039 0.0149 -0.0033 0.0011 0.1285 -0.0112 -0.0295 0.0360 0.1043 -0.0417 -0.0545 0.0486 b The shortfall is measured by cash flow shortfall ita ita div cashrank dummycs1 dummycs2 extcash cf lagi_ta mb size roa lev state div cashrank dummycs1 dummycs2 1.0000 -0.0142 -0.1046 0.1016 -0.0148 -0.0132 0.0192 0.2638 -0.0132 0.0274 -0.0066 -0.0084 0.0813 1.0000 -0.0476 0.0415 -0.0164 -0.0036 0.0015 0.0074 -0.0024 0.0270 0.0021 0.0045 0.0431 lev state 1.0000 0.0243 1.0000 Variable VIF 1/VIF dummycs1 cashrank dummycs2 size roa state lev lagi_ta extcash mb cf div 12.24 10.20 3.10 1.17 1.03 1.03 1.03 1.02 1.02 1.01 1.01 1.01 0.081690 0.098052 0.322592 0.852818 0.966602 0.970997 0.972545 0.982520 0.983489 0.987927 0.991429 0.994769 Mean VIF 2.91 lev state 1.0000 -0.8656 0.0029 -0.0020 -0.0623 -0.0773 0.0348 -0.0139 0.0347 0.0102 -0.0754 1.0000 -0.4120 0.0423 0.0359 0.0720 -0.0178 0.1612 -0.0169 0.0553 0.0662 1.0000 -0.0513 0.0480 -0.0217 -0.0151 -0.3227 -0.0139 -0.1033 -0.0287 vif 50 extcash cf lagi_ta mb size roa 1.0000 -0.0009 -0.0117 0.0927 0.0156 -0.0068 -0.0039 -0.0295 1.0000 0.0296 0.0011 -0.0301 -0.0001 0.0149 0.0360 1.0000 -0.0125 0.0233 -0.0078 -0.0033 0.1043 1.0000 0.0290 -0.0016 0.0011 -0.0417 1.0000 -0.1567 0.1285 -0.0545 1.0000 -0.0112 0.0486 Heteroskedasticity test a The shortfall is measured by cash flow volatility Fixed-effects (within) regression Group variable: id Number of obs Number of groups = = 976 244 R-sq: within = 0.0677 between = 0.0058 overall = 0.0000 Obs per group: = avg = max = 4.0 corr(u_i, Xb) = -0.8192 F(11,721) Prob > F ita div cfrank dummycf1 dummycf2 extcash cf lagi_ta mb size roa lev state _cons sigma_u sigma_e rho Coef Std Err -.0008645 0026455 -.002796 0074349 -.0323475 024575 -.0376635 015932 -7.55e-15 5.92e-15 3.67e-06 9.45e-06 -.1132922 0318281 0003338 0017056 0981065 0162682 0193377 0045453 0281831 0099607 (omitted) -2.623389 4512467 13116635 09841309 6398205 F test that all u_i=0: t P>|t| = = [95% Conf Interval] -0.33 -0.38 -1.32 -2.36 -1.28 0.39 -3.56 0.20 6.03 4.25 2.83 0.744 0.707 0.188 0.018 0.203 0.698 0.000 0.845 0.000 0.000 0.005 -.0060583 -.0173926 -.0805946 -.0689421 -1.92e-14 -.0000149 -.1757791 -.0030147 0661678 0104141 0086276 0043294 0118006 0158996 -.0063848 4.07e-15 0000222 -.0508053 0036824 1300453 0282612 0477387 -5.81 0.000 -3.509303 -1.737474 (fraction of variance due to u_i) F(243, 721) = 1.94 Prob > F = 0.0000 xttest3 Modified Wald test for groupwise heteroskedasticity in fixed effect regression model H0: sigma(i)^2 = sigma^2 for all i chi2 (244) = Prob>chi2 = 4.76 0.0000 1.8e+07 0.0000 51 b The shortfall is measured by cash flow shortfall Fixed-effects (within) regression Group variable: id Number of obs Number of groups = = 976 244 R-sq: within = 0.0612 between = 0.0052 overall = 0.0000 Obs per group: = avg = max = 4.0 corr(u_i, Xb) = -0.8244 F(11,721) Prob > F ita div cashrank dummycs1 dummycs2 extcash cf lagi_ta mb size roa lev state _cons sigma_u sigma_e rho Coef Std Err -.000915 002652 -.0025217 008575 0000344 0269908 0071874 0164963 -7.41e-15 5.97e-15 2.05e-06 9.48e-06 -.1147218 0319193 0008984 001704 100316 0164843 0187291 0045602 0292278 0099989 (omitted) -2.714275 456521 13230286 09875524 64219377 F test that all u_i=0: t P>|t| = = [95% Conf Interval] -0.35 -0.29 0.00 0.44 -1.24 0.22 -3.59 0.53 6.09 4.11 2.92 0.730 0.769 0.999 0.663 0.215 0.829 0.000 0.598 0.000 0.000 0.004 -.0061216 -.0193567 -.0529555 -.0251991 -1.91e-14 -.0000166 -.1773877 -.0024471 067953 0097763 0095974 0042917 0143133 0530243 039574 4.31e-15 0000207 -.0520558 0042438 132679 027682 0488581 -5.95 0.000 -3.610544 -1.818006 (fraction of variance due to u_i) F(243, 721) = 1.89 Prob > F = 0.0000 xttest3 Modified Wald test for groupwise heteroskedasticity in fixed effect regression model H0: sigma(i)^2 = sigma^2 for all i chi2 (244) = Prob>chi2 = 4.28 0.0000 4.7e+07 0.0000 52 Autocorrelation test a The shortfall is measured by cash flow volatility Wooldridge test for autocorrelation in panel data H0: no first order autocorrelation F( 1, 243) = 4.841 Prob > F = 0.0287 b The shortfall is measured by cash flow shortfall Wooldridge test for autocorrelation in panel data H0: no first order autocorrelation F( 1, 243) = 5.505 Prob > F = 0.0198 53 Final result Variable div cashrank extcash cf lagi_ta mb size roa lev state dummycs1 dummycs2 div_cashrank div_dummycs1 div_dummycs2 cashrank_d~1 cashrank_d~2 cfrank dummycf1 dummycf2 div_cfrank div_dummycf1 div_dummycf2 rankcf_dum~1 div_cfrank~1 rankcf_dum~2 div_cfrank~2 _cons CF1 CF2 CF3 0.1522 0.1522 0.1522 0.0000 0.0000 0.0947*** -0.0005 0.0071*** 0.0006 -0.0015 0.0070* 0.0000 0.0000 0.0947*** -0.0005 0.0071*** 0.0006 -0.0015 0.0070* CS1 -0.2629 -0.0035 -0.0000 -0.0000 0.1130*** -0.0001 0.0063*** -0.0003 -0.0027 0.0092** -0.0022 -0.0002 0.1194** 0.2619 0.0124 0.0000 0.0000 0.0947*** -0.0005 0.0071*** 0.0006 -0.0015 0.0070* CS2 -0.2563 -0.0000 -0.0000 0.1106*** -0.0001 0.0057*** -0.0005 -0.0028 0.0096** 0.0113** 0.0046 0.1183** 0.2553 0.0120 -0.0058 CS3 -0.2629 -0.0035 -0.0000 -0.0000 0.1130*** -0.0001 0.0063*** -0.0003 -0.0027 0.0092** -0.0022 0.1194** 0.2619 0.0124 -0.0001 0.0004 -0.0106 -0.0234*** -0.0245 -0.1285 0.0643 -0.0122* -0.0238*** -0.0245 -0.1285 0.0643 0.0004 0.0004 -0.0106 -0.0245 -0.1285 0.0643 -0.0078*** -0.1546*** -0.1530*** -0.1546*** -0.1375** -0.1332** -0.1375** legend: * p