Determinants of Dividend Smoothing: Empirical Evidence
Mark T. Leary
Washington University in St. Louis - Olin Business School; National Bureau of Economic Research (NBER)
Johnson@Cornell Tech, Cornell University; Interdisciplinary Center (IDC)
June 30, 2011
AFA 2011 Denver Meetings Paper
Johnson School Research Paper Series No. 18-2010
We document the cross-sectional properties of corporate dividend smoothing policies and relate them to extant theories. We find that younger, smaller firms, firms with low dividend yields, more volatile earnings and returns, and firms with fewer and more disperse analyst forecasts smooth less. Firms that are cash cows, with low growth prospects, weaker governance and greater institutional holdings smooth more. We also document that dividend smoothing has steadily increased over the past 80 years, even before firms began using share repurchases in the mid-1980s. Taken together, our results suggest that dividend smoothing is most common among firms that are not financially constrained, face low levels of asymmetric information, and are most susceptible to agency conflicts. These findings provide challenges and guidance for the developing theoretical literature.
Number of Pages in PDF File: 74
JEL Classification: G35
Date posted: March 18, 2010 ; Last revised: July 2, 2011
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