Intra-industry conformity in dividend policy
Purpose - The purpose of this paper is to study the impact of intra-industry conformity tendencies on dividend policy among a large sample of US firms. Design/methodology/approach - The paper explores mimetic influences on dividend policy. Consistent with prior institutional research, the paper measures mimetic pressures as institutional prevalence or the pervasiveness of a feature of dividend policy within a firm's relevant environment. Findings - The results reveal a significantly positive relationship between the lagged density of firms in the industry that pay a dividend and the probability of a focal firm paying a dividend. Moreover, for firms paying a dividend, results indicate that higher similarity in dividend payout among firms in the same industry induces more conformity between a focal firm and average industry practice. Overall, results are consistent with imitation in dividend policy. Research limitations/implications - The results support the view that future research on dividend policy should value social and behavioral factors more explicitly in order to arrive at a more overall and consistent explanation of firms' dividend policy. Moreover, the results also illustrate the relevance of alternative theories in explaining dividend policy. Practical implications - The results show that intra-industry benchmarking of dividend policy plays a significant role in the USA. Originality/value - This study documents the relevance of social imitation mechanisms behind dividend payout behavior and therefore adds to the current knowledge of the impact of behavioral processes on dividend policy.
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Volume (Year): 37 (2011)
Issue (Month): 6 (May)
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