The asymmetric response of dividends to earnings news

• DOI: 10.1016/j.frl.2023.103792
• Publication Date: 2023-03-20T23:08:36Z
• Authors: Jin Seo Cho; Matthew Greenwood...; Yongcheol Shin
• Keywords: Dividend payout ratio

We provide new evidence of sign asymmetry in dividend payout policy in the postwar period in the U.S. Using a nonlinear autoregressive distributed lag model, we show that managers: (i) smooth the time-path of dividends relative to earnings; (ii) target a higher long-run payout ratio when earnings increase than when they decrease; and (iii) cut dividends faster than they raise dividends. Our findings are consistent with existing research on the implications of agency problems and signaling effects for payout policy.