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We propose a novel empirical measure for a firm's value of financial flexibility and examine its impact on payout decisions. Studying listed firms from 23 countries over the 1998-2008 period, we find convincing evidence that the value of financial flexibility is an important determinant of payout policy. Specifically, firms with a high value of financial flexibility tend to limit or even avoid payouts. If such firms decide to disgorge cash, they prefer share repurchases to dividends. Overall,doi:10.2139/ssrn.2081596 fatcat:q6baqgsvnvhujftopbi3v4j24e