Dividend predictability around the world

Jesper Rangvid (), Maik Schmeling and Andreas Schrimpf
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Jesper Rangvid: Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: The common perception in the literature, mainly based on U.S. data, is that current dividend yields are uninformative about future dividends. We show that this finding changes substantially when looking at a broad international panel of countries, as aggregate dividend growth rates are found to be highly predictable by the dividend yield in medium-sized and smaller countries, but generally not in larger countries. We also show that dividend predictability is weaker in countries where the typical firm is larger and idiosyncratic dividend growth and return volatilities are lower. We find that the reason why dividends in countries with large and more stable firms are more difficult to predict is that these types of firms smooth their dividend more, and dividend smoothing disconnects movements in future dividends from dividend yield fluctuations making dividends difficult to predict. We finally show that in countries where the quality of institutions is high, dividend predictability is weaker. These findings indicate that the apparent lack of dividend predictability in the U.S. does not, in general, extend to other countries. Rather, dividend predictability is driven by cross-country differences in firm characteristics, dividend smoothing, and institutions.

Keywords: dividend yield; predictability; dividend smoothing; international stock markets; value; growth; firm size; idiosyncratic volatility (search for similar items in EconPapers)
JEL-codes: F31 G12 G15 (search for similar items in EconPapers)
Pages: 71
Date: 2010-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Dividend Predictability Around the World (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-03

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