Summary of Dividend Policy

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Review of inflation and the dividend policy of US firms. The objective of this study is to analyze the dividend policy of firms from a macroeconomic perspective when taking inflation and real growth into account. By applying cointegration techniques to examines the relationship between dividends, corporate earnings, real growth and inflation in the states. The cointegration tests are suggested by Lanne and Johansen. The finding of this study show clearly that inflation is indeed contributing to dividend growth. The test can be explained in different possibilities. Assumptions of prudent level of dividend income to be paid out to their investors may be seen in US firms. This would mean the belief in existence of certain optimal dividend policy in real terms in the corporate sector. There also another explanation would require a by far less active role of management, as inflation may simple increase the nominal volume of cooperate earnings and given that dividends are paid as a percentage of earnings thereby also the volumes of dividends. Overall the findings of this study explain that higher inflation leads to higher dividends.