Journal article
The asymmetric response of dividends to earnings news
Jin Seo Cho, Matthew Greenwood-Nimmo, Yongcheol Shin
Finance Research Letters | Elsevier | Published : 2023
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.
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Grants
Awarded by Economic and Social Research Council
Funding Acknowledgements
We are grateful for the constructive comments of the Editor-in-Chief, Samuel Vigne, two anonymous referees, In Choi, Tae-Hwan Kim and Michael Thornton. Cho acknowledges financial support from the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (Grant Reference: NRF-2019S1A5A2A01035568). Greenwood-Nimmo and Shin acknowledge partial financial support from the ESRC (Grant Reference: ES/T01573X/1). The views expressed herein are those of the authors and should not be reported as the views of Codera Analytics. The usual disclaimer applies. Each author contributed equally to the paper