The importance of cash-flow uncertainty in payout policy has received little attention in empirical studies, while survey studies such as [Lintner, J., 1956. Distribution of incomes of operations among dividends, retained earnings, and taxes. American Economic Review 46, 97–113.] and [Brav, A., Graham, J., Harvey C., Michaely, R., 2005. Payout policy in the 21st century. Journal of Financial Economics 77, 483–527.] indicate its importance. With worldwide firm-level data, we present evidence that cash-flow uncertainty is an important cross-sectional determinant of corporate payout policy. Our results show that across countries, cash-flow uncertainty, as proxied by stock return volatility, has a negative impact on the amount of dividends as well as the probability of paying dividends. The impact of cash-flow uncertainty on dividends is generally stronger than the impact of other potential determinants of payout policy—such as the earned/contributed capital mix, agency conflicts, and investment opportunities. We also find that the effect of cash-flow uncertainty on dividends is distinct from the effect of a firm's financial life-cycle stage.

In this study, we examine the patterns and determinants of share repurchases using firm-level data from seven major countries—Australia, Canada, France, Germany, Japan, the U.K., and the U.S.—over the period 1998–2006. We find that while non-U.S. firms do not repurchase shares as much as U.S. firms do, both U.S. and non-U.S. firms display a common set of share repurchase behaviors. For example, across countries, firms use share repurchases as a flexible means of distributing cash. More importantly, large cash holdings are significantly associated with the amount of share repurchases in all countries. There is evidence that large cash holdings held by repurchasing firms represent excess cash. Firms tend to experience substantial increases in cash holdings prior to share repurchase as a result of reductions in capital expenditures. Overall, our evidence lends support to two hypotheses: (i) firms discharge excess capital to reduce agency conflicts and (ii) firms use repurchases to distribute temporary cash flows.