Long-run evidence on dividend policy.

The empirical literature finds that dividend policy differs greatly across firms and changes slowly through time. Dividends seem to contain information about average stock returns, and aggregate dividend yields predict future market returns. However, there is no consensus about the explanation for these empirical regularities, nor even about their universal existence. In the literature it has been conjectured that slowly changing institutional factors are at least partly responsible for the relations and their strength.By using an unique, available dataset covering the full Belgian stock market since 1832, we are able to investigate the patterns described above over a 180 years period. Moreover, we can relate them to the underlying institutional setting. We can also test the impact of changing dividend policy on the relation between dividends and stock returns, as well as on the value of the aggregate dividend yield as a predictor for stock market returns.Firstly, we document patterns in dividend policy through time and relate them to changes in dividend taxes and institutional changes. Secondly, we study determinants of dividend policy across firms including measures of taxes, agency-conflicts, asymmetric information and liquidity. Thirdly, we link dividend yields to returns across firms, taking into account the changing patterns in dividend policy and its determinants. Finally, we relate the predictive strength of the dividend yield for market returns to these factors.

Keywords:CORPORATE FINANCE, ASSET PRICING, FINANCIAL HISTORY

Disciplines:Applied economics, Business administration and accounting, Management