Is Dividend Smoothing Universal? New Insights from a Comparative Study of Dividend Policies in Hong Kong and the U.S.

Journal of Corporate Finance, Vol. 16, pp. 413-430, 2010

41 Pages Posted: 23 Nov 2010

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Jie He

University of Georgia - Department of Finance

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

Y. Helen Liu

affiliation not provided to SSRN

Date Written: August 8, 2010

Abstract

In this paper, we develop new insights about the dynamics of corporate dividend policy by performing the natural experiment of comparing corporate dividend policies in Hong Kong and the U.S., two economies where the tax regime and equity ownership structure are significantly different. Our empirical results can be summarized as follows. First, a test of the Lintner model reveals that the extent of dividend smoothing by firms in Hong Kong is significantly less than those in the U.S. Second, the signaling effects of dividend changes on stock returns are stronger in the U.S. compared to those in Hong Kong. Third, our logit analysis of the determinants of dividend changes indicates that, while the lagged dividend yield significantly affects dividend changes in both countries in the same fashion, prior year stock returns have opposite effects on dividend changes in the two countries. Finally, the extent of dividend smoothing is not systematically related to blockholder equity ownership in either country. Overall, our results suggest that, compared to U.S. firms, Hong Kong firms pursue a more flexible dividend policy commensurate with earnings, and that the differences between the dividend policies of firms in the two countries are consistent with the signaling implications of the differences in the tax regime across the two countries.

Keywords: Dividend Smoothing, Comparative Study, Hong Kong

Suggested Citation

Chemmanur, Thomas J. and He, Jie and Hu, Gang and Liu, Y. Helen, Is Dividend Smoothing Universal? New Insights from a Comparative Study of Dividend Policies in Hong Kong and the U.S. (August 8, 2010). Journal of Corporate Finance, Vol. 16, pp. 413-430, 2010. Available at SSRN: https://ssrn.com/abstract=1713092

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Jie He

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

Y. Helen Liu

affiliation not provided to SSRN ( email )

Register to save articles to
your library

Register

Paper statistics

Downloads
201
Abstract Views
1,701
rank
151,065
PlumX Metrics