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Clustering in dividends: Do managers rely on cognitive reference points?

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  • Aerts, Walter
  • Campenhout, Geert Van
  • Caneghem, Tom Van

Abstract

Prior studies (see e.g. [Rosch, E. (1975). Cognitive reference points. Cognitive Psychology, 7, 532-547]) indicate that multiples of ten serve as cognitive reference points with a view to perceiving and evaluating numbers. In order to explore whether managers set dividends per share (henceforth DPS) at or just above a cognitive reference point, we perform a digital analysis on US firms' DPS for the period 1995-2004. That is, based on the theory of cognitive reference points, DPS of $2.00 will be viewed as being abnormally larger than DPS of $1.99, whereas the actual difference only amounts to a marginal $0.01. Results presented in this paper indicate that managers fall back on cognitive reference points when they set DPS, which shows in significantly more (fewer) zeroes (large digits) in the second-from-the-left position of DPS than would normally be expected. Overall, results presented in this paper tally with prior findings on odd-ending prices and price clustering documented in related disciplines.

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  • Aerts, Walter & Campenhout, Geert Van & Caneghem, Tom Van, 2008. "Clustering in dividends: Do managers rely on cognitive reference points?," Journal of Economic Psychology, Elsevier, vol. 29(3), pages 276-284, June.
    • Handle: RePEc:eee:joepsy:v:29:y:2008:i:3:p:276-284
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    2. Diederich, Johannes & Epperson, Raphael & Goeschl, Timo, 2023. "How to Design the Ask? Funding Units vs. Giving Money," Working Papers 0731, University of Heidelberg, Department of Economics.
    3. Yoonsoo Nam & Scott J Niblock & Elisabeth Sinnewe & Keith Jakob, 2018. "Do corporate directors ‘heap’ dividends? Evidence on dividend rounding and information uncertainty in Australian firms," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 421-438, August.
    4. Johannes Diederich & Raphael Epperson & Timo Goeschl, 2022. "How to Design the Ask? Funding Units vs. Giving Money," Working Papers 2022-18, Faculty of Economics and Statistics, Universität Innsbruck.
    5. Diederich, Johannes & Epperson, Raphael & Goeschl, Timo, 2022. "How to Design the Ask? Funding Units vs. Giving Money," Working Papers 0721, University of Heidelberg, Department of Economics.
    6. Mandeep K. Dhami & Ian K. Belton & Elizabeth Merrall & Andrew McGrath & Sheila M. Bird, 2020. "Criminal Sentencing by Preferred Numbers," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(1), pages 139-163, March.
    7. Garz, Marcel, 2018. "Effects of unemployment news on economic perceptions – Evidence from German Federal States," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 172-190.

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