On the Stickiness of Dividend Policy : A Study Using Migration Matrix

This article studies the stickiness and smoothness of dividend policy from a new perspective, through examining the dividend policy of Taiwanese firms over 2005-2012. The issues we investigate include: the propensity to paying dividends, the magnitude of dividends and the periods between the ex-dividend date and the payment date. We exploit the Markov migrating probability matrix to explore these issues. This study defines five states for the cash dividend-paying policy: paying none, paying within 22 days, paying between 23 and 28 days, paying between 29 and 36 days, and paying after more than 36 days, with respect to the various periods between the ex-dividend date and the payment date. After further dividing the sample of dividend payers into four groups according to the quartiles of dividend magnitude, we find firms reveal a high degree of stickiness and smoothness in terms of economic significance. Hence, the preponderance of smooth dividend policy is more prevalent than we thought of. This study sheds light on the reason why a dividends policy is sticky or smooth. We suggest that it has become a social norm to pay and receive dividends