The asymmetric response of dividends to earnings news

TY - JOUR

T1 - The asymmetric response of dividends to earnings news

AU - Cho, Jinseo

AU - Greenwood-Nimmo, Matthew

AU - Shin, Yongcheol

PY - 2023/6

Y1 - 2023/6

N2 - 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.

AB - 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.

KW - Payout policy

KW - Dividend smoothing

KW - Sign asymmetry

KW - Two-step estimation

U2 - 10.1016/j.frl.2023.103792

DO - 10.1016/j.frl.2023.103792

M3 - Article

SN - 1544-6123

VL - 54

JO - Finance Research Letters

JF - Finance Research Letters

M1 - 103792

ER -