IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Why individual investors want dividends

  • Dong, Ming
  • Robinson, Chris
  • Veld, Chris

The question of why individual investors want dividends is investigated by submitting a questionnaire to a Dutch investor panel. The respondents indicate that they want dividends partly because the cost of cashing in dividends is lower than the cost of selling shares. Their answers provide strong confirmation for the signaling theories of Bhattacharya (1979) and Miller and Rock (1985). They are inconsistent with the uncertainty resolution theory of Gordon (1961, 1962) and the agency theories of Jensen (1986) and Easterbrook (1984). The behavioral finance theory of Shefrin and Statman (1984) is not confirmed for cash dividends but is confirmed for stock dividends. Finally, our results indicate that individual investors do not tend to consume a large part of their dividends. This raises some doubt as to whether a reduction or elimination of dividend taxes will stimulate the economy.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6VFK-4GH49R3-1/2/d7a4bfeccb6e782b98ac6943ae1ba422
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 12 (2005)
Issue (Month): 1 (December)
Pages: 121-158

as
in new window

Handle: RePEc:eee:corfin:v:12:y:2005:i:1:p:121-158
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. David Ikenberry & Josef Lakonishok & Theo Vermaelen, 1994. "Market Underreaction to Open Market Share Repurchases," NBER Working Papers 4965, National Bureau of Economic Research, Inc.
  2. Allen, Franklin & Michaely, Roni, 2003. "Payout policy," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429 Elsevier.
  3. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, vol. 57(4), pages 1649-1684, 08.
  4. Donkers, A.C.D. & Melenberg, B. & van Soest, A.H.O., 1999. "Estimating Risk Attitudes Using Lotteries; A Large Sample Approach," Discussion Paper 1999-12, Tilburg University, Center for Economic Research.
  5. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  6. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
  7. Litzenberger, Robert H & Ramaswamy, Krishna, 1982. " The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?," Journal of Finance, American Finance Association, vol. 37(2), pages 429-43, May.
  8. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  9. Kabir, M.R. & de Jong, A. & Marra, T.A. & Röell, A.A., 2001. "Ownership and control in the Netherlands," Other publications TiSEM 67a9b6d3-f632-4853-a53d-f, Tilburg University, School of Economics and Management.
  10. Alon Brav & John R. Graham & Campbell R. Harvey & Roni Michaely, 2003. "Payout Policy in the 21st Century," NBER Working Papers 9657, National Bureau of Economic Research, Inc.
  11. Shefrin, Hersh M. & Statman, Meir, 1984. "Explaining investor preference for cash dividends," Journal of Financial Economics, Elsevier, vol. 13(2), pages 253-282, June.
  12. Hirshleifer, David, 2001. "Investor Psychology and Asset Pricing," MPRA Paper 5300, University Library of Munich, Germany.
  13. Barberis, Nicholas & Thaler, Richard, 2003. "A survey of behavioral finance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 18, pages 1053-1128 Elsevier.
  14. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
  15. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  16. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
  17. Donkers, Bas & van Soest, Arthur, 1999. "Subjective measures of household preferences and financial decisions," Journal of Economic Psychology, Elsevier, vol. 20(6), pages 613-642, December.
  18. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  19. David Ikenberry & Josef Lakonishok & Theo Vermaelen, 1999. "Stock Repurchases in Canada: Performance and Strategic Trading," NBER Working Papers 7325, National Bureau of Economic Research, Inc.
  20. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  21. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
  22. Gugler, Klaus, 2003. "Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1297-1321, July.
  23. Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April.
  24. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
  25. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
  26. Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 375-399, March.
  27. Jagannathan, Murali & Stephens, Clifford P. & Weisbach, Michael S., 2000. "Financial flexibility and the choice between dividends and stock repurchases," Journal of Financial Economics, Elsevier, vol. 57(3), pages 355-384, September.
  28. Winnett, Adrian & Lewis, Alan, 1995. "Household accounts, mental accounts, and savings behaviour: Some old economics rediscovered?," Journal of Economic Psychology, Elsevier, vol. 16(3), pages 431-448, September.
  29. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  30. Comment, Robert & Jarrell, Gregg A, 1991. " The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases," Journal of Finance, American Finance Association, vol. 46(4), pages 1243-71, September.
  31. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-90, July.
  32. H. Baker & Gary Powell & E. Veit, 2002. "Revisiting managerial perspectives on dividend policy," Journal of Economics and Finance, Springer, vol. 26(3), pages 267-283, September.
  33. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
  34. Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc.
  35. de Jong, Abe & van Dijk, Ronald & Veld, Chris, 2003. "The dividend and share repurchase policies of Canadian firms: empirical evidence based on an alternative research design," International Review of Financial Analysis, Elsevier, vol. 12(4), pages 349-377.
  36. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:12:y:2005:i:1:p:121-158. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.