Dividend Persistence and Dividend Behaviour

21 Pages Posted: 28 Mar 2018

See all articles by Kam Fong Chan

Kam Fong Chan

The University of Western Australia; Financial Research Network (FIRN)

John G. Powell

Massey University - Department of Finance Banking and Property

Shi Jing

Jiangxi University of Finance and Economics

Tom Smith

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Date Written: March 2018

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.

Keywords: Dividend behaviour, Dividend persistence, Spurious regression and correlation

Suggested Citation

Chan, Kam Fong and Powell, John G. and Jing, Shi and Smith, Tom M., Dividend Persistence and Dividend Behaviour (March 2018). Accounting & Finance, Vol. 58, Issue 1, pp. 127-147, 2018. Available at SSRN: https://ssrn.com/abstract=3151111 or http://dx.doi.org/10.1111/acfi.12208

Kam Fong Chan (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

John G. Powell

Massey University - Department of Finance Banking and Property ( email )

Private Bag 11 222
Massey University
Palmerston North, 4442
New Zealand

Shi Jing

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Tom M. Smith

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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