IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v8y2008i5p533-546.html
   My bibliography  Save this article

An empirical re-examination of the dividend-investment relation

Author

Listed:
  • Mbodja Mougoue

Abstract

Modigliani and Miller show that, in perfect capital markets, the optimal investment decisions of a firm are not affected by how these investments are financed. Miller and Modigliani further imply that, under the assumption of perfect capital markets, a firm's investment decisions are not affected by its dividend decisions, although dividend decisions may or may not be influenced by investment decisions. Fama and Miller label this result the separation principle. Most recent studies of the separation principle that take into account the existence of market imperfections report sharply contradictory results. This paper tests for linear and nonlinear causality between dividends and investments using both firm-specific and aggregate data for a sample of 417 firms over the 1962 to 2004 period. In general, linear causality tests support the separation principle, whereas nonlinear causality test results contradict the separation principle by revealing strong bi-directional linkages between dividends and investments.

Suggested Citation

  • Mbodja Mougoue, 2008. "An empirical re-examination of the dividend-investment relation," Quantitative Finance, Taylor & Francis Journals, vol. 8(5), pages 533-546.
  • Handle: RePEc:taf:quantf:v:8:y:2008:i:5:p:533-546
    DOI: 10.1080/14697680701458026
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680701458026
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. P. S. Sanju & P. S. Nirmala & M. Ramachandran, 2011. "Are dividend and investment decisions separable?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(20), pages 1515-1524.
    2. Deng, Lu & Li, Sifei & Liao, Mingqing & Wu, Weixing, 2013. "Dividends, investment and cash flow uncertainty: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 112-124.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:8:y:2008:i:5:p:533-546. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.