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AN EMPIRICAL INVESTIGATION OF ASYMMETRIC BEHAVIOR IN CORPORATE DIVIDEND POLICY
Author(s) -
SHIRVANI HASSAN,
WILBRATTE BARRY
Publication year - 1997
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1997.tb01968.x
Subject(s) - dividend , economics , earnings , dividend policy , ratchet effect , monetary economics , retained earnings , dividend payout ratio , stock (firearms) , empirical evidence , financial economics , finance , ratchet , mechanical engineering , philosophy , management , epistemology , chaotic , engineering
Employing three alternative measures of ability to pay, we find support for the Lintner hypothesis that firms pursue a long‐run target payout ratio and also that current earnings better explain long‐run dividends than cash flows or stock prices. The evidence further indicates that corporations adjust dividends with a ratchet effect, raising them more readily than they lower them. More specifically, when dividends are below target levels, firms move toward equilibrium by increasing them, but when dividends are above target levels, firms approach equilibrium by restricting dividend increases as earnings rise.