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Intra-industry conformity in dividend policy

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  • Tom Van Caneghem
  • Walter Aerts
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    Abstract

    Purpose – The purpose of this paper is to study the impact of intra-industry conformity tendencies on dividend policy among a large sample of US firms. Design/methodology/approach – The paper explores mimetic influences on dividend policy. Consistent with prior institutional research, the paper measures mimetic pressures as institutional prevalence or the pervasiveness of a feature of dividend policy within a firm's relevant environment. Findings – The results reveal a significantly positive relationship between the lagged density of firms in the industry that pay a dividend and the probability of a focal firm paying a dividend. Moreover, for firms paying a dividend, results indicate that higher similarity in dividend payout among firms in the same industry induces more conformity between a focal firm and average industry practice. Overall, results are consistent with imitation in dividend policy. Research limitations/implications – The results support the view that future research on dividend policy should value social and behavioral factors more explicitly in order to arrive at a more overall and consistent explanation of firms' dividend policy. Moreover, the results also illustrate the relevance of alternative theories in explaining dividend policy. Practical implications – The results show that intra-industry benchmarking of dividend policy plays a significant role in the USA. Originality/value – This study documents the relevance of social imitation mechanisms behind dividend payout behavior and therefore adds to the current knowledge of the impact of behavioral processes on dividend policy.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Managerial Finance.

    Volume (Year): 37 (2011)
    Issue (Month): 6 (June)
    Pages: 492-516

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    Handle: RePEc:eme:mfipps:v:37:y:2011:i:6:p:492-516

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    Related research

    Keywords: Dividends; Organizational theory; United States of America;

    References

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    Cited by:
    1. Jiatao Li & Carmen Ng, 2013. "The Normalization of Deviant Organizational Practices: The Non-performing Loans Problem in China," Journal of Business Ethics, Springer, vol. 114(4), pages 643-653, June.

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