Why are aggregate equity payouts pro-cyclical?

Winifred Huang-Meier*, Mark C. Freeman, Khelifa Mazouz

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


We use two general equilibrium models to explain why changes in the external economic environment result in pro-cyclical aggregate dividend payout behavior. Both models that we consider endogenize low elasticity of investment. The first model incorporates capital adjustment costs, while the second one assumes that risk-averse managers maximize their own objective function rather than shareholder wealth. We show that, while both models generate pro-cyclical aggregate dividends, a feature consistent with the observed business-cycle pattern of payouts from well-diversified portfolios, the second model provides a more likely explanation for this effect. Our findings emphasize the importance of incorporating agency conflicts when considering the relationship between the external economic environment and the financial behavior of businesses.

Original languageEnglish
Pages (from-to)98-108
Number of pages11
JournalJournal of Macroeconomics
Early online date24 Feb 2015
Publication statusPublished - Jun 2015

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Macroeconomics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Huang-Meier, W., Freeman, M. C., & Mazouz, K. Why are aggregate equity payouts pro-cyclical?. Journal of macroeconomics, 44 (2015). DOI: http://dx.doi.org/10.1016/j.jmacro.2015.01.005


  • business fluctuations
  • capital adjustment costs
  • dynamic stochastic general equilibrium economies
  • firm objectives
  • payout policy


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