Generalized dividend behavior model and dividend smoothing: theory and empirical evidence

Cheng few Lee, James Juichia Lin*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


The main purpose of this study is to use generalized dividend behavior model proposed by Fama and Babiak (1968) and Lee et al. (1987) to re-examine previous dividend smoothing researches. This study proposes a dividend smoothing model that integrates two prevailing dividend hypotheses to evaluate the degree of dividend smoothing behaviors and investigates cross-sectional variation in determining a firm’s propensity to smooth dividend. By using a sample of 1193 U.S. firms, we support the notion that dividend smoothing behaviors are driven by different channels. Our findings show that firms with a stronger monitoring mechanism or are subject to more agency conflicts will smooth dividend more through partial adjustment channel. In our additional analysis, we show that firms with greater accounting conservatism or poor financial reporting quality are prone to smooth dividend more driven by signaling motives.

Original languageEnglish
Pages (from-to)1529-1561
Number of pages33
JournalReview of Quantitative Finance and Accounting
Issue number4
StatePublished - Nov 2023


  • Accounting conservatism
  • Dividend smoothing
  • Earnings expectation coefficient
  • Financial reporting quality
  • Speed of partial adjustment


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