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Determinants of Dividend Smoothing: Empirical Evidence

74 Pages Posted: 18 Mar 2010 Last revised: 2 Jul 2011

Mark T. Leary

Washington University in St. Louis - Olin Business School; National Bureau of Economic Research (NBER)

Roni Michaely

Johnson@Cornell Tech, Cornell University

Date Written: June 30, 2011

Abstract

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.

JEL Classification: G35

Suggested Citation

Leary , Mark T. and Michaely, Roni, Determinants of Dividend Smoothing: Empirical Evidence (June 30, 2011). AFA 2011 Denver Meetings Paper; Johnson School Research Paper Series No. 18-2010. Available at SSRN: https://ssrn.com/abstract=1572618 or http://dx.doi.org/10.2139/ssrn.1572618

Mark T. Leary (Contact Author)

Washington University in St. Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Roni Michaely

Johnson@Cornell Tech, Cornell University ( email )

111 8th Avenue #302
New York, NY 10011
United States

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