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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.