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What drives the disappearing dividends phenomenon?

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  • Kuo, Jing-Ming
  • Philip, Dennis
  • Zhang, Qingjing

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.

Suggested Citation

  • Kuo, Jing-Ming & Philip, Dennis & Zhang, Qingjing, 2013. "What drives the disappearing dividends phenomenon?," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3499-3514.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:9:p:3499-3514
    DOI: 10.1016/j.jbankfin.2013.05.003
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    1. repec:ers:ijebaa:v:v:y:2017:i:4:p:104-132 is not listed on IDEAS
    2. 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.
    3. Nicolas Aubert, 2016. "Does the Catering Theory of Dividend Apply to the French Listed Firms?," Bankers, Markets & Investors, ESKA Publishing, issue 145, pages 27-38, November-.
    4. 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.
    5. Kamal Anouar & Nicolas Aubert, 2016. "Does the catering theory of dividend apply to the French listed firms?," Working Papers halshs-01401867, HAL.
    6. Warwick Anderson & Wen Kang, 2018. "The Relative Announcement Effects of Ordinary Dividends, Special Dividends and Share Buybacks in New Zealand," Working Papers in Economics 18/02, University of Canterbury, Department of Economics and Finance.

    More about this item

    Keywords

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

    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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