| dc.description.abstract | This dissertation investigates the sluggish adjustment process of dividend
payment in the stock market. First, I focus on the individual stocks. A casual
investigation of observed dividends for individual stocks shows dividend adjustments
are sluggish and discrete; this is not consistent with the Lintner??s stylized fact (1956) in
which dividend adjustments are assumed to change continuously. Thus, I examine three
possible explanations to account for dividend stickiness and discreteness: menu-costs
(i.e. a constant adjustment cost), decision-making delays, and dividend adjustment
asymmetry. I reject Dixit??s menu-cost model as an appropriate specification for the
sluggish adjustment process of dividends. The empirical results imply that decisionmaking
delays and dividend adjustment asymmetry might be possible explanations for
sticky and discrete dividends on selected individual stocks.
Second, I focus on the aggregate stock market. I use a quadratic adjustment cost
model to examine whether adjustment costs can explain the slow adjustment of
aggregate dividends. The empirical results suggest that adjustment costs might be a
significant factor explaining the slow dividend adjustment for S&P 500. The value of
relative weigh cost is related to the specification of target dividend. If target dividendsare related to earnings, then the empirical results suggest that the adjustment costs are
about forty-fold more important than the deviation cost between the actual dividend and
the target level in determining the dynamic dividend adjustment process. If target
dividends are specified as proportion to the stock prices, the adjustment costs are about
fourteen-fold more important than the deviation cost between actual dividend and target
level when managers determine the dividends. | en |
