PurposeThe purpose of this paper is to analyse the dividend policy of firms from a macroeconomic perspective. In order to do so inflation and real growth are also considered.Design/methodology/approachThe paper examines the relationship between dividends, corporate earnings, real growth and inflation in the USA by applying cointegration techniques. In this framework, impulse response analysis is used to test the two most popular theories of dividend determination.FindingsThe data indicate three cointegration relations among the four‐time series. Impulse response analysis then shows some interesting dynamics. Dividend smoothing seems to be a relevant phenomenon. Furthermore, inflation has a positive effect on dividends.Research limitations/implicationsThe most important finding of this paper is the indication of a positive relationship between inflation and dividend payments. This can be interpreted in two different ways: managers may try to follow a dividend policy, which is perceived to be optimal, believing that there is a desirable level of real dividend income to be paid to their investors. On the other hand, inflation may simply increase the nominal value of corporate earnings and therefore the dividends paid. Independently from the interpretation of the results, inflation should definitely be considered analysing dividend policy.Practical implicationsManagers should also examine the inflationary environment formulating an adequate dividend policy for their firm.Originality/valueThe paper provides an as of yet widely ignored link between the micro‐ and macroeconomic sphere examining one of the most important problems of financial economics. Neglecting the effects of inflation on dividends may, among others, be one reason for the mixed empirical findings testing theories of dividend determination.

The financial crisis has led to controversial discussions about the capital base of the European insurance industry. Dividend cuts have been suggested to preserve capital. However, some observers seem to fear that investors could interpret a reduction of dividends as a sign of future problems. The empirical evidence reported here does not indicate that dividend smoothing or dividend signalling are relevant economic phenomena examining the dividend policy of the European insurance industry. Therefore, insurance companies should not be too concerned about the negative consequences of dividend cuts.

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