ABSTRACT
The notion of dividend policy being influenced by what happened in earlier years was explored in more detail by Prais who adapted work done by Koyck on the lag between output and investment, to the question of dividend behaviour. Several reasons can be put forward for there being a lag in the reaction of company directors’ decisions on dividend distribution to a change in the rate of profit. The permanent income hypothesis, introduced by Friedman in connection with consumer expenditure, provided an approach to the explanation of the appropriation of company profit. In each year the short term propensity to distribute is fairly low, although there is a fair rise in 1952, coinciding with the return to power of the conservative government, and a similar rise in 1961 reflecting the general rise in the proportion companies paid out in dividends in that year.
