Testing Partial Adjustment Dividend Behavioral Models in Emerging Markets: Evidence from Pre- and Post-Market Reforms in Bangladesh

Abstract

A number of studies examine dividend policy and security price behavior in emerging markets but none on the stock market of Bangladesh. Partial adjustments are made to dividend behavior models that are then tested on the Dhaka Stock Exchange using data over the period of 1988-2003 in order to identify the dividend policy and security price behavior of the emerging Stock Market of Bangladesh. The empirical results suggest that dividend decisions are primarily governed by current profitability and lagged dividends. The empirical results identified cash flow as the better measure of the company’s ability to pay dividends.

JEL Classification: G35