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Dividend Smoothing and Firm Valuation

Journal of financial and quantitative analysis, 2022-06, Vol.57 (4), p.1621-1647 [Peer Reviewed Journal]

The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington ;Copyright University of Washington, School of Business Administration Jun 2022 ;ISSN: 0022-1090 ;EISSN: 1756-6916 ;DOI: 10.1017/S0022109021000673

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  • Title:
    Dividend Smoothing and Firm Valuation
  • Author: Brockman, Paul ; Hanousek, Jan ; Tresl, Jiri ; Unlu, Emre
  • Subjects: Acquisitions & mergers ; Bonding ; Business valuation ; Dividends ; Extraction ; Premiums ; Stocks ; Valuation
  • Is Part Of: Journal of financial and quantitative analysis, 2022-06, Vol.57 (4), p.1621-1647
  • Description: We examine the relationship between dividend smoothing and firm valuation across 21 countries using several empirical methods and smoothing measures. Our main results show that dividends are capitalized at significantly larger values for high-smoothing firms than for low-smoothing firms. We also find that dividend-smoothing premiums are higher in countries with weak shareholder protection – suggesting that smoothing serves as a substitute mechanism to reduce agency costs. Overall, our findings support the view that managers use dividend smoothing predominantly as a bonding mechanism to reduce agency costs (Leary and Michaely (2011)), and not as a rent extraction mechanism (Lambrecht and Myers (2012)).
  • Publisher: New York, USA: Cambridge University Press
  • Language: English
  • Identifier: ISSN: 0022-1090
    EISSN: 1756-6916
    DOI: 10.1017/S0022109021000673
  • Source: AUTh Library subscriptions: ProQuest Central
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