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Peer influence on payout policies

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  • Adhikari, Binay K.
  • Agrawal, Anup

Abstract

Using a large sample of US public companies, we find robust evidence that firms' payout policies, i.e., dividends and share repurchases, are significantly influenced by the policies of their industry peers. To overcome endogeneity problems, we employ instrumental variable techniques based on peers' stock price shocks. Peer influence on payouts is more pronounced among firms that face greater product market competition and operate in better information environments. With regards to dividends, firms, especially smaller and younger firms, are more sensitive to industry peers that are similar to them in size and age. However, mimicking repurchases is concentrated among large and mature firms only. Peer influence on dividends, compared to repurchases, seems more stable across firm and industry conditions. Overall, peer influence on dividends, and, to a less extent, on repurchases, is consistent with a rivalry-based theory of imitation, which posits that firms imitate peers' actions to maintain their competitive parity.

Suggested Citation

  • Adhikari, Binay K. & Agrawal, Anup, 2018. "Peer influence on payout policies," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 615-637.
    • Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:615-637
    DOI: 10.1016/j.jcorpfin.2017.12.010
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    More about this item

    Keywords

    Payout policy; Dividend policy; Share repurchases; Peer effects; Mimicking; Imitation;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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