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Dividend Smoothing and Investor Protection

Authors
  • Džidić, Ante1
  • Orsag, Silvije2
  • 1 Faculty of Economics, Bosnia and Herzegovina , (Bosnia & Herzegovina)
  • 2 Faculty of Economics and Business, Croatia , (Croatia)
Type
Published Article
Journal
Zagreb International Review of Economics and Business
Publisher
Sciendo
Publication Date
Nov 01, 2019
Volume
22
Issue
2
Pages
55–70
Identifiers
DOI: 10.2478/zireb-2019-0020
Source
De Gruyter
Keywords
License
Green

Abstract

This paper examines the agency model of dividends where the importance of dividends depends on the level of investor protection. The importance of dividends is presented by the dividend smoothing concept, while the level of investor protection is determined by the legal origin. Within this, the sensitivity of dividends to earnings changes was analyzed to examine the universality of the dividend smoothing phenomenon. Subsequently, the difference in proportions of dividend smoothing firms within the common law and civil law countries was tested to determine which of these two systems attributes more importance to dividends. Finally, the application of Lintner’s model was examined in transition countries as well as in United States. Research results show that dividend smoothing is a globally widespread phenomenon, but the likelihood to reduce or cut dividends is greater in civil law countries. Also, the largest percentage of dividend smoothing firms was recorded in common law countries.

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