The principal objective of this study is to explore the asymmetric dividend smoothing behavior of the aggregate stock market. We extend the linear partial adjustment model of Lintner (1956) so as to incorporate asymmetry in the dividend payout policy,...
The principal objective of this study is to explore the asymmetric dividend smoothing behavior of the aggregate stock market. We extend the linear partial adjustment model of Lintner (1956) so as to incorporate asymmetry in the dividend payout policy, which involves the regime-dependent adjustment costs depending on the deviations of the dividends from the permanent earnings. We find strong evidence of the threshold effect in the adjustment process of the aggregate real dividends when real stock prices are used as the permanent earnings. The empirical results demonstrate that the dividend decision is accompanied by asymmetric smoothing behavior of the aggregate dividends.