The Long-Run Persistence of Dividend Policy
45 Pages Posted: 7 Jul 2020 Last revised: 22 Jun 2023
Date Written: May 25, 2020
Dividend policy is not set de novo each year, but dividends are smoothed from one year to the next, leading to a short-term persistent component. In this paper, we investigate whether there is also long-run persistence in dividend policy, by using a unique sample of firms listed on the Brussels Stock Exchange since 1824. We show that dividend smoothing leads to a long-term persistent component in dividend policy, as we find evidence that the initial dividend policy, as measured in the first calendar year after listing, has a long-lasting effect on future dividend policy. Although this effect persists for many years, it fades away over time. When this happens, a new slowly changing dividend policy emerges.
Keywords: Dividend policy, Dividend smoothing, Imprinting, Financial history, Belgium
JEL Classification: G35, N23, N24
Suggested Citation: Suggested Citation