What's behind smooth dividends? evidence from structural estimation

I study the driving forces behind dividend smoothing by developing a dynamic agency model in which dividends signal the earnings persistence of firms. In equilibrium, managers treat dividends and earnings as informational substitutes. They smooth dividends relative to earnings to smooth negative news releases and lower their turnover risk. Empirical estimates of the model parameters imply that 39% of observed dividend smoothness among U.S. firms is driven by managers' own career concerns, not shareholders' preferences. Managers cut investments and adjust external financing policies to accommodate this career-concern-based dividend smoothing. These effects lead to a 2% decline in firm value.