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Dividend persistence and dividend behaviour

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  • Kam Fong Chan
  • John G. Powell
  • Jing Shi
  • Tom Smith

Abstract

This article demonstrates how a spurious regression problem caused by dividend persistence is compounded by a spurious correlation problem when the dependent and independent variables in dividend behaviour regressions are ratios composed of common component variables. This article utilises a simulation procedure to take account of these problems, with the findings implying that extreme care should be taken when using ratios as predictor or explanatory variables in time series regression. This article introduces a reformulated Lintner first difference dividend behaviour model that is not subject to spurious regression in which past prices predict subsequent changes in dividends.

Suggested Citation

  • Kam Fong Chan & John G. Powell & Jing Shi & Tom Smith, 2018. "Dividend persistence and dividend behaviour," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 127-147, March.
    • Handle: RePEc:bla:acctfi:v:58:y:2018:i:1:p:127-147
    DOI: 10.1111/acfi.12208
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    3. Joanna Golden & Kenneth Zheng, 2022. "Cost management and corporate payout decisions," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 911-938, April.

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