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Dividend persistence and dividend behaviour
Author(s) -
Chan Kam Fong,
Powell John G.,
Shi Jing,
Smith Tom
Publication year - 2018
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12208
Subject(s) - spurious relationship , dividend , econometrics , regression analysis , persistence (discontinuity) , regression , economics , statistics , mathematics , engineering , geotechnical engineering , finance
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 L intner first difference dividend behaviour model that is not subject to spurious regression in which past prices predict subsequent changes in dividends.