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Demographics, dividend clienteles and the dividend premium

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  • Lee, King Fuei

Abstract

The catering theory of dividends proposed that corporate dividend policy is driven by prevailing investor demand for dividend payers, and that managers cater to investors by paying dividends when the dividend premium is high. While earlier research found that the dividend premium is not driven by traditional clienteles derived from market imperfections such as taxes, transaction costs, or institutional investment constraints, we find empirical evidence that demographic clienteles are an important source of the time-varying demand for dividend payers. In particular, we find that, as consistent with the behavioural life-cycle theory and the marginal opinion theory of stock price, the dividend premium is positively driven by demographic clientele variation represented by changes in the proportion of the older population. Our results are robust when controlled for the factors of investor sentiment, signalling, agency costs and time trend.

Suggested Citation

  • Lee, King Fuei, 2010. "Demographics, dividend clienteles and the dividend premium," MPRA Paper 34546, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34546
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    References listed on IDEAS

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    Cited by:

    1. Lee, King Fuei, 2011. "Demographics and the Long-Horizon Returns of Dividend-Yield Strategies in the US," MPRA Paper 46350, University Library of Munich, Germany.
    2. Lee, King Fuei, 2013. "Demographics and the long-horizon returns of dividend-yield strategies," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 202-218.

    More about this item

    Keywords

    Dividend policy; demographics; dividend premium; dividend clienteles;

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G00 - Financial Economics - - General - - - General

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