Appearing and disappearing dividends: The link to catering incentives
We document a close link between fluctuations in the propensity to pay dividends and catering incentives. First, we use the methodology of Fama and French (2001) to identify a total of four distinct trends in the propensity to pay dividends between 1963 and 2000. Second, we show that each of these trends lines up with a corresponding fluctuation in catering incentives: The propensity to pay increases when a proxy for the stock market dividend premium is positive and decreases when it is negative. The lone disconnect is attributable to Nixon-era controls.
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"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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