What Do We Know about Dividend Smoothing in This Millennium? Evidence from Asian Markets

ABSTRACT

We examined the smoothing pattern of dividends on publicly stock-listed companies in the so-called Asian Tigers – China, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand. Based on a panel of data comprising 702 companies from 2000 to 2015, we estimated the speed of dividend adjustment (SOA) using a generalized method of moments two-step estimator. Having implemented an improved procedure using a rolling regression, we obtained the SOA coefficient equal to 0.447, which confirmed a moderate level of dividend smoothing among the selected countries. Moreover, we examined the SOA’s drivers by employing a range of variables reflecting the companies’ and the countries’ characteristics. The most influential firm-level determinants of dividend smoothing in emerging Asian markets were payout ratio, retained earnings and level of risk proxied by the return on asset standard deviation. Additionally, we identified the relevance of the financial market sophistication and board efficacy as potential drivers of dividend smoothing.

KEYWORDS:

• Payout policy
• dividend smoothing
• emerging markets
• Asian Tigers

JEL:

• G35

Acknowledgments

We would like to thank the anonymous referees for comments and suggestions. In addition, we would like to thank participants of the 2018 INFINITI Conference on International Finance in Poznan, the 35th GdRE Annual International Symposium on Money, Banking and Finance in Aix-en-Provence and the SSEM EuroConference 2018 on Emerging Market Economies in Lodz for their valuable comments on previous versions of this paper. All remaining errors are our own.

Notes

1. According to the WFE classification, in 2015, the Asia-Pacific region included 23 stock markets.

2. For example, lists of Shariah-compliant securities are provided by the stock exchanges in Malaysia, Indonesia and the Philippines.

3. In a later study, Shinozaki and Uchida (2017) investigated companies from 44 countries, including Indonesia, Taiwan and Thailand. However, the authors did not reveal the results obtained within the country samples.

4. Although in the analyzed years, the questions concerning selected problems have been slightly modified, the directions of the scales and the meanings are the same, in our opinion.

5. The whole sample comprises 6,659 observations, including 1,561 from China, 425 from Indonesia, 1,697 from Korea, 956 from Malaysia, 107 from the Philippines, 862 from Taiwan and 1,051 from Thailand.

Additional information

Funding

The research was conducted and financed within the research grant (project number 2014/15/D/HS4/01220) funded by the National Science Centre, Poland.