Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy*
Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy*
DAVID J. DENIS** Krannert School of Management Purdue University West Lafayette, IN 47907 djdenis@purdue.edu
IGOR OSOBOV Georgia State University Department of Finance Atlanta, GA 30303 iosobov@gsu.edu
May, 2007
We thank Yakov Amihud, Harry DeAngelo, Linda DeAngelo, Diane Denis, Jim Hsieh, Omesh Kini, Erik Lie, John McConnell, Lalitha Naveen, Raghu Rau, Steve Smith, Jeff Wurgler, an anonymous referee, and seminar participants at Colorado, Georgia State, and Purdue for helpful comments.
**
*
Corresponding author.
Electronic copy available at: http://ssrn.com/abstract=887643
Why do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy
Abstract In the U.S., Canada, U.K., Germany, France, and Japan, the propensity to pay dividends is higher among larger, more profitable firms, and those for which retained earnings comprise a large fraction of total equity. Although there are hints of reductions in the propensity to pay dividends in most of the sample countries over the 1994 to 2002 period, they are driven by a failure of newly listed firms to initiate dividends when expected to do so. Dividend abandonment and the failure to initiate by existing nonpayers are economically unimportant except in Japan. Moreover, in each country, aggregate dividends have not declined and are concentrated among the largest, most profitable firms. Finally, outside of the U.S. there is little evidence of a systematic positive relation between relative prices of dividend paying and non-paying firms and the propensity to pay dividends. Overall, these findings cast doubt on signaling, clientele, and catering explanations for dividends, but support agency cost-based lifecycle theories.
1
Electronic copy available at: http://ssrn.com/abstract=887643
Why do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy
1.
DAVID J. DENIS** Krannert School of Management Purdue University West Lafayette, IN 47907 djdenis@purdue.edu
IGOR OSOBOV Georgia State University Department of Finance Atlanta, GA 30303 iosobov@gsu.edu
May, 2007
We thank Yakov Amihud, Harry DeAngelo, Linda DeAngelo, Diane Denis, Jim Hsieh, Omesh Kini, Erik Lie, John McConnell, Lalitha Naveen, Raghu Rau, Steve Smith, Jeff Wurgler, an anonymous referee, and seminar participants at Colorado, Georgia State, and Purdue for helpful comments.
**
*
Corresponding author.
Electronic copy available at: http://ssrn.com/abstract=887643
Why do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy
Abstract In the U.S., Canada, U.K., Germany, France, and Japan, the propensity to pay dividends is higher among larger, more profitable firms, and those for which retained earnings comprise a large fraction of total equity. Although there are hints of reductions in the propensity to pay dividends in most of the sample countries over the 1994 to 2002 period, they are driven by a failure of newly listed firms to initiate dividends when expected to do so. Dividend abandonment and the failure to initiate by existing nonpayers are economically unimportant except in Japan. Moreover, in each country, aggregate dividends have not declined and are concentrated among the largest, most profitable firms. Finally, outside of the U.S. there is little evidence of a systematic positive relation between relative prices of dividend paying and non-paying firms and the propensity to pay dividends. Overall, these findings cast doubt on signaling, clientele, and catering explanations for dividends, but support agency cost-based lifecycle theories.
1
Electronic copy available at: http://ssrn.com/abstract=887643
Why do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy
1.
References: Miller, Merton H., and Franco Modigliani, 1961, Dividend policy, growth, and the valuation of shares, The Journal of Business 34, 411-33.