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2013 | nr 39 | 70--81
Tytuł artykułu

Do Investor Preferences Drive Corporate Dividend Policy?

Warianty tytułu
Języki publikacji
EN
Abstrakty
EN
This research paper aims at assessing whether managers adapt their dividend policies to the changing preferences of investors, as predicted by the catering theory of dividends. To answer this question, we used an modified approach based on the method proposed by Baker and Wurgler [2004a] in their studies on dividend catering. We noted a systematic decline in percentage of companies that paid out dividends in a sample of American publicly-traded companies, excluding companies of low capitalization and low profitability. Next, we observed a parallel declining tendency in dividend premiums in our sample. The decrease in the readiness to pay out dividends among companies on the American market can be linked to the fact that investors have assigned less weight to dividends over the years, and so in turn they were less willing to reward dividend-paying companies with higher valuations. Periodic fluctuations in investor mood with regard to dividend-paying companies, and the resulting changes in their relative valuation, influence the propensity of managers to pay out dividends. We showed a statistically significant relationship between changes in dividend premiums in one year, and the proportion of companies that paid out dividends in the following year. Additionally, it looks like companies try to compensate shareholders by paying out dividends in years of worse performing market and are less likely to distribute their earnings when shareholders gain on rising stock price. We found a negative correlation between the change in proportion of companies paying out dividends and changes in the S&P500 index. However, this does not seem to reflect investor preferences and taste for dividends. We found no statistically significant correlations between the change of the dividend premium and changes in the S&P500 index and, surprisingly, we observed relatively worse valuation of dividend-paying firms in years of market downturn.In terms of originality, our work contributes to the ongoing dividend puzzle discussion in a number of ways. First, we use a sample of American companies after excluding small capitalization stocks. Second, we assume a time lag between a shift in investor preferences and a change in corporate payout policy. Finally, our studies also account for the impact of general market conditions on dividend decisions. (original abstract)
Rocznik
Numer
Strony
70--81
Opis fizyczny
Twórcy
  • Szkoła Główna Handlowa w Warszawie, doktorant
autor
  • Szkoła Główna Handlowa w Warszawie
Bibliografia
  • Ali A., Urcan O. (2006), Dividends increases and future profitability, Working Paper, University of Texas at Dallas, Dallas.
  • Baker M., Wurgler J. (2004a), Appearing and disappearing dividends: The link to catering incentives, Journal of Financial Economics, No. 73, pp. 271-288.
  • Baker M., Wurgler J. (2004b), A catering theory of dividends, The Journal of Finance, No. 59, pp. 1125-1165.
  • Baker M.,Wurgler J. (2012), Behavioral corporate finance: an updated survey, in: Constantinides G.M., Harris M., Stulz R.M. (eds.), Handbook of the Economics of Finance: Vol. 2, Oxford, UK: North Holland.
  • Fuller K.P., Goldstein, M. (2011), Do dividends matter more in declining markets, Journal of Corporate Finance, No. 17, pp. 457-473.
  • Fama E., French K. (2001), Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay? Journal of Financial Economics, No. 60, pp. 3-43.
  • Julio B., Ikenberry L. (2004), Reappearing dividends, Journal of Applied Corporate Finance, No. 16, pp. 89-100.
  • Hansen L.P., Heaton J.C., Li N. (2005), Intangible risk, in: Corrado C., Haltiwanger J., Sichel D. (eds.), Measuring Capital in the New Economy. Chicago, USA: Chicago University Press.
  • Hansen P.R., Lunde A., Nason, J.M. (2005), Testing the significance of calendar effects, Working Paper, Federal Reserve Bank of Atlanta, Atlanta.
  • Hoberg G., Prabhala R. (2009), Disappearing dividends, catering, and risk, Review of Financial Studies, No. 22, pp. 79-116.
  • Hsieh J., Wang Q. (2006), Determinants of the trends in aggregate corporate payout policy, Working Paper, George Mason University, Fairfax.
  • Kahneman D., Tversky A. (1979), Prospect Theory: an analysis of decision under risk, Econometrica, No. 47, pp. 263-292.
  • Kale R., Kini O., Payne D. (2012), On the dividends initiation decisions of newly public firms: some evidence on signaling with dividends, Journal of Financial and Quantitative Analysis, No. 47, pp. 365-396.
  • Long J. (1978), The market valuation of cash dividends: a case to consider, Journal of Financial Economics, No. 6, pp. 235-264.
  • Neves E., Pindado J., De La Torre C. (2006), Dividends: new evidence on catering theory, Working Paper, Salamanca University, Salamanca.
  • Twu M., Shen C. (2006), Catering to dividends demand and the institutional variables of capital markets, Working Paper, National Chengchi University, Taipei City
Typ dokumentu
Bibliografia
Identyfikatory
Identyfikator YADDA
bwmeta1.element.ekon-element-000171269697

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