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Sticky dividends: A new explanation

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  • Ha, Chang Yong
  • Im, Hyun Joong
  • Kang, Ya

Abstract

This study proposes a generalized partial adjustment model of dividends in which managers set target dividends based on adaptively-formed earnings prospects. We show that firms adjust dividends to their target payouts much faster than previously documented. When managers form future earnings expectations based on a longer time-series of earnings, target dividends tend to become more stable. Thus, actual dividends tend to be more in line with the targets, driving up the speed of adjustment. Our model offers an insight that sticky dividends could be a consequence of managers’ attempts to match dividend payouts with the smooth targets.

Suggested Citation

  • Ha, Chang Yong & Im, Hyun Joong & Kang, Ya, 2017. "Sticky dividends: A new explanation," Finance Research Letters, Elsevier, vol. 23(C), pages 69-79.
  • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:69-79
    DOI: 10.1016/j.frl.2017.05.010
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    References listed on IDEAS

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