Title

The Dynamics of Dividends, Earnings and Stock Prices: Evidence and Implications for Dividend Smoothing and Signaling

Publication Type

Journal Article

Publication Date

1999

Abstract

This paper examines the dynamic relations among corporate dividends, earnings and prices, and the implications of these relations for dividend signaling and smoothing. A multiple hypotheses testing method is employed to identify causal relations among the three financial variables and to test the empirical implications of dividend smoothing and signaling models. The results show that dynamic relations exist among dividends, earnings and prices. Empirical evidence is consistent with the contention that dividend changes are often driven by both signaling and smoothing motives. Additional tests are developed to differentiate between the dividend signaling and smoothing models. These tests impose restrictions on the dynamics of the financial variables and information signaling. It is found that dividend changes frequently provide information about unexpected changes in future earnings for a little more than a year.

Discipline

Business

Research Areas

Finance

Publication

Journal of Empirical Finance

Volume

6

Issue

1

First Page

29

Last Page

58

ISSN

0927-5398

Identifier

10.1016/s0927-5398(98)00008-5

Publisher

Elsevier