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- Title
The Disappearing Aggregate Ratchet Effect.
- Authors
Wann, Christi R.; Long, D. Michael
- Abstract
This study investigates the effect of SEC Rule 10b-18 on long-run aggregate payout ratios and the information content hypothesis. Prior to 1984, long-run aggregate positive payout ratios are mean reverting and signal higher future earnings growth. The subsequent significant rise in repurchase activity in 1984 eliminates the pre-1984 mean reversion and information content of aggregate payout ratios. After 1984, payout ratios are not mean reverting and do not signal aggregate future earnings growth. Therefore, it appears that the expansion of firm choice regarding the form of payout has resulted in a disappearing or significantly weaker ratchet effect.
- Subjects
CORPORATE profits; STATISTICAL hypothesis testing; DIVIDENDS; REPURCHASE agreements; MEAN reversion theory
- Publication
Banking & Finance Review, 2018, Vol 10, Issue 1, p61
- ISSN
1947-7945
- Publication type
Article