The Adjustment of Dividends to Permanent Earnings

The formation of permanent earnings expectations in dividend adjustment is considered explicitly. An adjustment model consistent with the rational expectations hypothesis is formulated to analyze corporate dividend behavior. The analysis shows that the proposed rational expectations model is more ge...

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Main Authors: WU, Chunchi, Kao, C.
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 1992
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/811
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spelling sg-smu-ink.lkcsb_research-18102010-09-23T06:24:04Z The Adjustment of Dividends to Permanent Earnings WU, Chunchi Kao, C. The formation of permanent earnings expectations in dividend adjustment is considered explicitly. An adjustment model consistent with the rational expectations hypothesis is formulated to analyze corporate dividend behavior. The analysis shows that the proposed rational expectations model is more general than previous models for examining the individual firm's dividend adjustment. A nonlinear regression model is used to estimate the parameters of the model and test the validity of the rational expectations-permanent earnings hypothesis in dividend decision making. The partial adjustment model with rational expectations explains corporate dividend behavior very well. The results suggest that firms make use of the earnings information to form optimal estimates of permanent earnings and that firms' dividend adjustment processes are completed in about 3 quarters. The empirical results are consistent with the dividend information hypothesis and market rationality. 1992-01-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/811 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Business
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Business
spellingShingle Business
WU, Chunchi
Kao, C.
The Adjustment of Dividends to Permanent Earnings
description The formation of permanent earnings expectations in dividend adjustment is considered explicitly. An adjustment model consistent with the rational expectations hypothesis is formulated to analyze corporate dividend behavior. The analysis shows that the proposed rational expectations model is more general than previous models for examining the individual firm's dividend adjustment. A nonlinear regression model is used to estimate the parameters of the model and test the validity of the rational expectations-permanent earnings hypothesis in dividend decision making. The partial adjustment model with rational expectations explains corporate dividend behavior very well. The results suggest that firms make use of the earnings information to form optimal estimates of permanent earnings and that firms' dividend adjustment processes are completed in about 3 quarters. The empirical results are consistent with the dividend information hypothesis and market rationality.
format text
author WU, Chunchi
Kao, C.
author_facet WU, Chunchi
Kao, C.
author_sort WU, Chunchi
title The Adjustment of Dividends to Permanent Earnings
title_short The Adjustment of Dividends to Permanent Earnings
title_full The Adjustment of Dividends to Permanent Earnings
title_fullStr The Adjustment of Dividends to Permanent Earnings
title_full_unstemmed The Adjustment of Dividends to Permanent Earnings
title_sort adjustment of dividends to permanent earnings
publisher Institutional Knowledge at Singapore Management University
publishDate 1992
url https://ink.library.smu.edu.sg/lkcsb_research/811
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