Rational expectations and corporate dividend policy |
| |
Authors: | Chihwa Kao Cheng F Lee Chunchi Wu |
| |
Institution: | (1) Department of Economics, Syracuse University, 13244 Syracuse, NY;(2) Department of Finance, School of Business, Rutgers University, 08903 New Brunswick, NJ;(3) Department of Finance, Syracuse University, 13244 Syracuse, NY |
| |
Abstract: | The problem of expectations formation has been either ignored or treated with very restrictive assumptions in traditional
dividend adjustment models. Since these models are typically used to explain the dividend decisions of individual firms, a
more satisfactory treatment of the process of expectations formation is needed. In order to analyze the dynamic dividend adjustment
process, this article proposes a model, more general than previous ones, that is consistent with the rational expectations
hypothesis. A nonlinear regression method is used to estimate the parameters of the model and to test the validity of the
rational expectations hypothesis in dividend decisions making. The partial adjustment model with rational expectations explains
dividend adjustments reasonably well. The overall results suggest that firms make use of available earnings information to
form optimal future earnings forecasts; specifically, a firm's dividend adjustment process is completed in about two and a
half quarters. This article also finds that the fourth-order serial correlation problem disappears after a generalized Tobit
model is used for the parameter estimation. |
| |
Keywords: | generalized Tobit two-step estimator likelihood ratio test |
本文献已被 SpringerLink 等数据库收录! |
|