The Long-Run Persistence of Dividend Policy

Abstract

Dividend policy is not set de novo each year, but dividends are smoothed from one year to another. This smoothing leads to a short-term persistence in dividend policy. In this paper, we investigate the persistence of a dividend policy in the long run by using a unique sample of firms listed on the Brussels Stock Exchange (BSE) since 1824. The imprinting theory argues that firms develop certain persistent characteristics at important moments in their life cycle. Our investigation provides evidence that the initial dividend policy, measured at a firm’s first listing, has an effect on the future dividend policy. This effect persists for many years but decreases over the firm’s life cycle. However, a new stable slowly changing persistent component in dividend policy is formed.

Keywords: Dividend policy, Imprinting theory, Life-cycle considerations, Financial history, Belgium

JEL Classification: G35, N23, N24