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Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors

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  • JOHN R. GRAHAM
  • ALOK KUMAR

Abstract

We study stock holdings and trading behavior of more than 60,000 households and find evidence consistent with dividend clienteles. Retail investor stock holdings indicate a preference for dividend yield that increases with age and decreases with income, consistent with age and tax clienteles, respectively. Trading patterns reinforce this evidence: Older, low-income investors disproportionally purchase stocks before the ex-dividend day. Furthermore, among small stocks, the ex-day price drop decreases with age and increases with income, consistent with clientele effects. Finally, consistent with the behavioral "attention" hypothesis, we document that older and low-income investors purchase stocks following dividend announcements. Copyright 2006 by The American Finance Association.

Suggested Citation

  • John R. Graham & Alok Kumar, 2006. "Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors," Journal of Finance, American Finance Association, vol. 61(3), pages 1305-1336, June.
  • Handle: RePEc:bla:jfinan:v:61:y:2006:i:3:p:1305-1336
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