Dividend and Share Changes: Is There a Financing Hierarchy? / Robert L. McDonald, Naomi Soderstrom.

Format:

Book

Author/Creator:

McDonald, Robert L.

Contributor:

National Bureau of Economic Research.

Soderstrom, Naomi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2029.

NBER working paper series no. w2029

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Dividend and Share Changes

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Summary:

The most widely accepted empirical dividend model is that proposed by Lintner, who argued that firms smooth dividends over time. Many theoretical dividend models, however, either predict that dividends should be highly variable, or at least offer no support for the smoothing hypothesis. We use a switching regression model to test the Lintner model against an alternative which allows dividend behavior to differ depending upon whether or not firms are issuing shares. We reject the Lintner model, finding no evidence of dividend smoothing when firms are not issuing shares, and a high negative dividend growth rate when firms are issuing shares. This description of dividend behavior suggests the existence of a financing hierarchy in that the marginal source of finance differs over time. To further explore the financing hierarchy, we estimate logit models which explain the decisions by firms to change dividends, and to issue or repurchase shares. The results are consistent with the existence of a financing hierarchy.

Notes:

Print version record

September 1986.