The asymmetric response of dividends to earnings news

Jin Seo Cho (), Matthew Greenwood-Nimmo and Yongcheol Shin

Finance Research Letters, 2023, vol. 54, issue C

Abstract: We provide new evidence of sign asymmetry in dividend payout policy in the postwar period in the U.S. Using a nonlinear autoregressive distributed lag model, we show that managers: (i) smooth the time-path of dividends relative to earnings; (ii) target a higher long-run payout ratio when earnings increase than when they decrease; and (iii) cut dividends faster than they raise dividends. Our findings are consistent with existing research on the implications of agency problems and signaling effects for payout policy.

Keywords: Payout policy; Dividend smoothing; Sign asymmetry; Two-step estimation (search for similar items in EconPapers)
JEL-codes: C22 C58 G35 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Working Paper: The Asymmetric Response of Dividends to Earnings News (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001654

DOI: 10.1016/j.frl.2023.103792

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