The asymmetric response of dividends to earnings news

Jin Seo Cho; Matthew Greenwood-Nimmo; Yongcheol Shin

doi:10.1016/j.frl.2023.103792

The asymmetric response of dividends to earnings news

Jin Seo Cho^*, Matthew Greenwood-Nimmo, Yongcheol Shin

^*Corresponding author for this work

Indonesia Project

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

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.

Original language	English
Article number	103792
Pages (from-to)	1-7
Number of pages	7
Journal	Finance Research Letters
Volume	54
DOIs	https://doi.org/10.1016/j.frl.2023.103792
Publication status	E-pub ahead of print - 20 Mar 2023

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title = "The asymmetric response of dividends to earnings news",

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.",

keywords = "Dividend smoothing, Payout policy, Sign asymmetry, Two-step estimation",

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AU - Cho, Jin Seo

AU - Greenwood-Nimmo, Matthew

AU - Shin, Yongcheol

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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 - Dividend smoothing

KW - Payout policy

KW - Sign asymmetry

KW - Two-step estimation

UR - https://www.scopus.com/pages/publications/85151008181

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DO - 10.1016/j.frl.2023.103792

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JO - Finance Research Letters

JF - Finance Research Letters

M1 - 103792

ER -

The asymmetric response of dividends to earnings news

Abstract

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