The Role of Market Fluctuation and Imperfection on Dividends Smoothing

Masoud Taherinia, Abas Talari


This study aimed to investigate the effect of market fluctuation (earnings fluctuation) and imperfection on dividend smoothing. In this study, environmental uncertainty is used as a market fluctuation index calculated by the standard deviation of profitability changes over three years. In order to investigate the issue, data on companies listed in Tehran Stock Exchange for 9 years, that is, 2011-2019, were extracted, and a panel regression model was used to test the research hypotheses. The results showed that the information asymmetry in inefficient markets motivates managers to manipulate and smooth profits to achieve their goals. Dividend smoothing is a function of market imperfection and fluctuates and changes in various levels of environmental uncertainty. It, environmental uncertainty leads to the difference in smoothing the dividends between companies operating in conditions of high environmental uncertainty and companies operating in conditions of low environmental uncertainty. Environmental uncertainty increases overall ambiguity about the company by creating incomplete information. It causes benefits for certain investors from obtaining private information about the company.

Keywords: dividend smoothing, market fluctuation, market imperfection.

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