Dividend Behavior and Dividend Signaling

Posted: 16 Aug 2000

See all articles by Richard Priestley

Richard Priestley

Norwegian Business School

Ian Garrett

Manchester Business School


We analyze the dividend behavior of the aggregate stock market. We propose a model that assumes managers minimize the costs of adjustment associated with being away from their target dividend payout. The target is expressed as a function of lagged stock prices and permanent earnings, generalizing previous models of dividend behavior. We present a new method for measuring unobserved permanent earnings based on the Kalman filter. Our specification of dividend behavior is strongly supported by the data relative to both alternative models and over time. We find significant evidence of dividend smoothing and dividends conveying information regarding unexpected positive changes in current permanent earnings. We also find that both the speed of adjustment of dividends to target dividends and tests of signaling are sensitive to the specification of the model.

JEL Classification: G35

Suggested Citation

Priestley, Richard and Garrett, Ian, Dividend Behavior and Dividend Signaling. Available at SSRN: https://ssrn.com/abstract=234160

Richard Priestley

Norwegian Business School ( email )

N-0442 Oslo, 0283
47 46410515 (Phone)

Ian Garrett (Contact Author)

Manchester Business School ( email )

United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics