"Cash Flow-Predictability: Still Going Strong"
Speaker
Abstract
| The common perception in the literature, mainly based on U.S. data, is that current dividend yields are uninformative about future dividends. We show that this finding changes substantially when looking at a broad international panel of countries, as aggregate dividend growth rates are found to be highly predictable by the dividend yield in medium-sized and smaller countries, but generally not in larger countries. We also show that dividend predictability is weaker in countries where the typical firm is larger and idiosyncratic dividend growth and return volatilities are lower. We find that the reason why dividends in countries with large and more stable firms are more di cult to predict is that these types of firms smooth their dividend more, and dividend smoothing disconnects movements in future dividends from dividend yield fluctuations making dividends difficult to predict. We finally show that in countries where the opportunities of firms to grow large are good because the quality of institutions is high, dividend predictability is weaker. These findings indicate that cross-country differences of firm characteristics, dividend smoothing, and institutions explain differences in dividend predictability around the globe. |
| Contact information: |
| Kees Bouwman |
