Dividend smoothing and the cross-sectional determinants of corporate payout policy

This study examines the underlying factors which influence and cross-sectionally explain differences in the degree of dividend smoothing of firms. Differences in corporate dividend smoothing are documented by estimating the sensitivity of corporations' dividend payout ratios to changes in earnings. Theoretical determinants of dividend smoothing are investigated by cross-sectionally regressing the degree of dividend smoothing of firms against firm characteristics. The results show that riskier firms and smaller firms are more likely to smooth dividends. The empirical relationship between dividend smoothing and firm characteristics is much more significant for high growth firms, and varies considerably amongst sub-groups of the data that differ with respect to firm risk.