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An Examination of the Empirical Relationship between the Dividend and Investment Decisions: A Note
Author(s) -
SMIRLOCK MICHAEL,
MARSHALL WILLIAM
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03849.x
Subject(s) - dividend , proposition , economics , investment (military) , investment decisions , dividend policy , empirical research , causality (physics) , empirical evidence , aggregate (composite) , econometrics , financial economics , microeconomics , finance , mathematics , behavioral economics , law , politics , political science , philosophy , statistics , physics , materials science , epistemology , quantum mechanics , composite material
This paper empirically examines the separation principle, which asserts that investment decisions are not influenced by dividend decisions. Existing empirical evidence on this proposition is inconclusive. In this paper, we employ causality tests to examine whether investment decisions are, in fact, statistically exogenous with respect to dividend decisions. These tests are undertaken using both firm‐specific and aggregate data. The results indicate no causal relationship from dividends to investment, which provides support for the separation principle as an empirical proposition.