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Why Do Firms Pay Dividends?: Evidence from an Early and Unregulated Capital Market

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  • John D. Turner
  • Qing Ye
  • Wenwen Zhan

Abstract

Why do firms pay dividends? To answer this question, we use a hand-collected data set of companies traded on the London stock market between 1825 and 1870. As tax rates were effectively zero, the capital market was unregulated, and there were no institutional stockholders, we can rule out these potential determinants ex ante. We find that, even though they were legal, share repurchases were not used by firms to return cash to shareholders. Instead, our evidence provides support for the information--communication explanation for dividends, while providing little support for agency, illiquidity, catering, or behavioral explanations. Copyright 2013, Oxford University Press.

Suggested Citation

  • John D. Turner & Qing Ye & Wenwen Zhan, 2013. "Why Do Firms Pay Dividends?: Evidence from an Early and Unregulated Capital Market," Review of Finance, European Finance Association, vol. 17(5), pages 1787-1826.
  • Handle: RePEc:oup:revfin:v:17:y:2013:i:5:p:1787-1826
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    File URL: http://hdl.handle.net/10.1093/rof/rfs048
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    Citations

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    Cited by:

    1. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    2. Campbell, Gareth & Quinn, William & Turner, John D. & Ye, Qing, 2015. "What moved share prices in the nineteenth-century London stock market?," QUCEH Working Paper Series 15-06, Queen's University Belfast, Queen's University Centre for Economic History.
    3. Ye, Qing & Turner, John D., 2014. "The cross-section of stock returns in an early stock market," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 114-123.
    4. Enrico Onali, 2014. "Moral Hazard, Dividends, and Risk in Banks," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 128-155, January.
    5. repec:bla:ehsrev:v:71:y:2018:i:1:p:157-189 is not listed on IDEAS
    6. repec:bla:ehsrev:v:71:y:2018:i:3:p:823-852 is not listed on IDEAS
    7. repec:eee:jbfina:v:85:y:2017:i:c:p:113-131 is not listed on IDEAS
    8. Acheson, Graeme G. & Campbell, Gareth & Turner, John D., 2015. "Who financed the expansion of the equity market? Shareholder clienteles in Victorian Britain," QUCEH Working Paper Series 15-07, Queen's University Belfast, Queen's University Centre for Economic History.
    9. Onali, Enrico & Galiakhmetova, Ramilya & Molyneux, Philip & Torluccio, Giuseppe, 2016. "CEO power, government monitoring, and bank dividends," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 89-117.

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