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What drives the disappearing dividends phenomenon?

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Listed author(s):
  • Kuo, Jing-Ming
  • Philip, Dennis
  • Zhang, Qingjing
Registered author(s):

    Abstract

    We study the determinants of dividend payout policy and examine the role of liquidity, risk and catering in explaining the changes in propensity to pay. Our results indicate that risk plays a major role in firms’ dividend policy. The evidence substantiates from a large sample of firms representing 18 countries over the sample period from 1989 to 2011. For firms in the US, France, UK and Other European markets, liquidity is additionally an important determinant of dividend policy. We find that, although catering incentives persist only among firms in common law countries and not in civil law countries, after adjusting for risk there is little support for catering theory even among firms incorporated in common law countries. Our results indicate that catering incentives reflect the risk-reward relationship in the changing propensity to pay dividends.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613002215
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 9 ()
    Pages: 3499-3514

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:9:p:3499-3514
    DOI: 10.1016/j.jbankfin.2013.05.003
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

    Keywords: Catering; Dividend payout policy; Risk; Liquidity; Life-cycle effect;

    Find related papers by JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79.
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    17. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    18. von Eije, Henk & Megginson, William L., 2008. "Dividends and share repurchases in the European Union," Journal of Financial Economics, Elsevier, vol. 89(2), pages 347-374, August.
    19. Ferris, Stephen P. & Jayaraman, Narayanan & Sabherwal, Sanjiv, 2009. "Catering effects in corporate dividend policy: The international evidence," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1730-1738, September.
    20. Liu, Weimin, 2006. "A liquidity-augmented capital asset pricing model," Journal of Financial Economics, Elsevier, vol. 82(3), pages 631-671, December.
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    Cited by:

    1. Rihanat Idowu Abdulkadir & Nur Adiana Hiau Abdullah & Wong Woei-Chyuan, 2015. "Dividend Policy Changes in The Pre-, Mid-, and Post-Financial Crisis: Evidence from The Nigerian Stock Market," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 11(2), pages 103-126.
    2. Nabaraj Adhikari, Ph.D., 2015. "Determinants of Corporate Dividend Payout in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 27(2), pages 1-22, October.
    3. Kamal Anouar & Nicolas Aubert, 2016. "Does the catering theory of dividend apply to the French listed firms?," Working Papers halshs-01401867, HAL.

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