Aggregate Dividend Behavior and Permanent Earnings Hypothesis

Ming-Shiun Pan

The Financial Review, 2001, vol. 36, issue 1, 23-38

Abstract: The study examines the aggregate dividend behavior of U.S. corporations based on the permanent earnings hypothesis. Using annual data of aggregate earnings and dividends from 1871-1993, I find that although managers change dividends proportional to permanent earnings changes, they make revisions with a larger percentage change in dividends than in permanent earnings. The results from the post-war data show that firms follow a partial adjustment policy with a long-term dividend payout target in mind and make revisions with a delay. The quarterly data analysis yields results similar to those of the post-war annual data. Copyright 2001 by MIT Press.

Date: 2001
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