Does Dividend Policy Lead the Economy?

54 Pages Posted: 30 May 2013 Last revised: 18 Dec 2020

See all articles by Paulo F. Maio

Paulo F. Maio

Hanken School of Economics - Department of Finance and Statistics

Date Written: December 17, 2020


I investigate the predictive role of the aggregate dividend-payout ratio (de) for future economic activity. A variance decomposition shows that the main driving force of variation in de is long-run predictability of earnings growth, with dividend growth predictability assuming a modest role. The results from long-horizon regressions indicate that de is a significant predictor, both in statistical and economic terms, of future business conditions. This effect is particularly strong at intermediate and long horizons. Critically, de outperforms several popular equity and bond predictors in terms of forecasting the economy. The predictive ability of de remains robust in an out-of-sample analysis.

Keywords: dividend-payout ratio; earnings growth; variance decomposition; financial markets and the economy; forecasting economic activity; earnings predictability; out-of-sample predictability; long-horizon regressions

JEL Classification: E27, E37, E44, G10, G17, G35

Suggested Citation

Maio, Paulo F., Does Dividend Policy Lead the Economy? (December 17, 2020). Available at SSRN: or

Paulo F. Maio (Contact Author)

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki


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