Corporate Valuation and Dividends: UK Evidence from Panel Unit Root and Cointegration Tests

In this study we investigate the long run relationship between dividends and corporate valuation with the use of panel unit root tests and panel cointegration analysis. The long run relationship is estimated using fully modified OLS for a panel consisting of 479 firms listed on the London Stock Exchange over the time period 1984–2007. The empirical results provide clear support for the hypothesis that there is a single equilibrium relation between market value, book value, earnings and dividends, and that dividends have a positive impact on corporate valuation.