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Time-Series Implications of Aggregate Dividend Behavior

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  • Lee, Bong-Soo

Abstract

This article investigates the hypothesis that dividend changes are determined by changes in some measure of permanent earnings. The analysis employs two measures of permanent earnings and takes into account the nonstationarity of dividend and earnings series. This study finds that dynamic dividend behavior is accounted for primarily by changes in permanent earnings. Dividends respond strongly to permanent changes earnings without any significant overreaction, whereas they respond little, if at all, to transitory changes in earnings. The findings also suggest that the partial adjustment hypothesis, which assumes managers partially adjust dividends to a target dividend, performs better when the target dividend level is proportional to permanent earnings than when it is proportional to current earnings. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Lee, Bong-Soo, 1996. "Time-Series Implications of Aggregate Dividend Behavior," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 589-618.
  • Handle: RePEc:oup:rfinst:v:9:y:1996:i:2:p:589-618
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    Citations

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    Cited by:

    1. Chuang, Wen-I & Lee, Bong-Soo, 2006. "An empirical evaluation of the overconfidence hypothesis," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2489-2515, September.
    2. Chung, Heetaik & Lee, Bong-Soo, 1998. "Fundamental and nonfundamental components in stock prices of Pacific-Rim countries," Pacific-Basin Finance Journal, Elsevier, pages 321-346.
    3. Lucy Ackert & William Hunter, 2001. "An Empirical Examination of the Price-Dividend Relation with Dividend Management," Journal of Financial Services Research, Springer;Western Finance Association, pages 115-129.
    4. Krieger, Kevin & Lee, Bong-Soo & Mauck, Nathan, 2013. "Do senior citizens prefer dividends? Local clienteles vs. firm characteristics," Journal of Corporate Finance, Elsevier, pages 150-165.
    5. Tswei, Keshin, 2013. "Is transaction price more value relevant compared to accounting information? An investigation of a time-series approach," Pacific-Basin Finance Journal, Elsevier, pages 1062-1078.
    6. Lee, Bong Soo & Suh, Jungwon, 2011. "Cash holdings and share repurchases: International evidence," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1306-1329.
    7. Lee, Bong-Soo & Hong, Gwangheon, 2002. "On the dual characteristics of closed-end country funds," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 589-618, October.
    8. Ji, Philip Inyeob, 2016. "Is corporate payout taxation a long run phenomenon? Evidence from international data," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 84-100.
    9. repec:eee:glofin:v:34:y:2017:i:c:p:1-15 is not listed on IDEAS
    10. William C. Hunter & Lucy F. Ackert, 1999. "Intrinsic Bubbles: The Case of Stock Prices: Comment," American Economic Review, American Economic Association, pages 1372-1376.
    11. Lee, Bong Soo & Mauck, Nathan, 2016. "Dividend initiations, increases and idiosyncratic volatility," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 47-60.
    12. Lee, Bong Soo & Paek, Miyoun & Ha, Yeonjeong & Ko, Kwangsoo, 2015. "The dynamics of market volatility, market return, and equity fund flow: International evidence," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 214-227.
    13. Yang, Insun & Koveos, Peter & Barkley, Tom, 2015. "Permanent sales increase and investment," Journal of Empirical Finance, Elsevier, pages 15-33.
    14. Enders, Walter & Lee, Bong-Soo, 1997. "Accounting for real and nominal exchange rate movements in the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 233-254, April.
    15. Lee, Bong-Soo, 1996. "Comovements of earnings, dividends, and stock prices," Journal of Empirical Finance, Elsevier, pages 327-346.
    16. Barry FALK & Bong-Soo LEE, 1996. "Fads Versus Fundamentals In Farmland Prices," Staff Papers 281, Iowa State University Department of Economics.

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