This paper examines the asymmetric dividend behavior of the aggregate stock market. We propose the nonlinear version of Lintner (1956) model that posits managers minimize the regime dependent adjustment costs associated with being away from their target dividend. By using the threshold vector error correction model, we find significant evidence of threshold effect in aggregate real dividends of S&P 500 in quarterly data when real stock prices are used for a proxy as the target dividends. This indicates that the adjustment cost of dividends is regime-dependent. We also find that when dividends are relatively higher than their target, the adjustment speed (cost) of dividends is much faster (smaller) than that when they are lower.
Key words: Dividend adjustment; Asymmetry
