Dividend persistence and dividend behaviour

Abstract

This article demonstrates how a spurious regression problem caused by dividend persistence is compounded by a spurious correlation problem when the dependent and independent variables in dividend behaviour regressions are ratios composed of common component variables. This article utilises a simulation procedure to take account of these problems, with the findings implying that extreme care should be taken when using ratios as predictor or explanatory variables in time series regression. This article introduces a reformulated Lintner first difference dividend behaviour model that is not subject to spurious regression in which past prices predict subsequent changes in dividends.

Cross‐listings and dividend size and stability: evidence from China

“…Dividend policies vary among companies; some companies pay dividends, while others invest the company’s resources back into the business instead of paying dividends (Black, 1976). The stability of dividend payments also varies across companies (e.g., Gwilym et al , 2000; Brown et al , 2011; Chan et al , 2018). Differences in companies’ dividend policies can be related to whether the company is from an emerging market (e.g., Mitton, 2004; Cheng et al , 2009; Akhtar, 2018) and can be related to whether the company has cross‐listed its shares (e.g., Abdallah and Goergen, 2008).…”

External finance and dividend policy: a twist by financial constraints

“…Prior studies (for example, Li et al, 2006;Pathan et al, 2016) try to test the link between financing capacity and dividend policies but are subject to the endogeneity problem as a result of the unclear causality between financing decisions and dividend policies -that is, while financing capacity is dependent on dividend policies, dividend policies are also dependent on the sufficiency of finance (see also Chan et al, 2016). This study addresses the endogeneity problem by utilising a quasi-natural experimental setting formed by the release of the regulation 'Decisions on Amending Provisions on Cash Dividends by Listed Firms' by the Chinese Securities Regulatory Commission (CSRC) in October 2008.…”

Dividend persistence and earnings management in emerging markets

“…In this sense, raising the dividend payments without ensuring that profits will increase continuously can be unwise, since there is a possibility that dividends would be reduced in the future, whether due to a financial crisis or the high risk of a country, which can provoke discontent among investors (Marsh & Merton, 1987). However, to keep shareholders satisfied, managers can preserve certain levels of dividend payments constantly, which makes the distribution of dividends persistent over the periods, since reducing such dividends would not be an acceptable decision to the shareholders (Chan et al, 2018).…”

“…In this context, if persistent earnings are important for valuation models (Dechow et al, 2010), and dividends must be more persistent than earnings because managers tend to preserve constant dividend payments to satisfy shareholders (Chan et al, 2018), our motivation is to comparatively examine the dividend persistence in emerging countries where investors can find economic recessions, a higher sovereign risk, and less legal protection than in developed countries. Thus, since it is evident in the literature the importance of more persistent inputs (either earnings or dividends) for valuation models (Dechow et al, 2010;Damodaran, 2012), we clarify that in this study we analyzed the element of persistence, and not its effect on valuation models.…”

“…According to Dechow et al (2010), earnings management occurs when managers exercise judgment about a firm's financial information and operating activities to change its accounting information to suit the managers' interests. Besides, one interest of managers may be the influence on the firm's equity valuation, since earnings can be managed to achieve a higher level of shareholder satisfaction, which prolongs their stay at the company (Chan et al, 2018).…”