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Dividend persistence and dividend behaviour

Kam Fong Chan, John G. Powell, Jing Shi and Tom Smith

Accounting and Finance, 2018, vol. 58, issue 1, 127-147

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.

Date: 2018
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Handle: RePEc:bla:acctfi:v:58:y:2018:i:1:p:127-147