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Demographics, dividend clienteles and the dividend premium

  • Lee, King Fuei

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34546.

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Date of creation: Dec 2010
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Publication status: Forthcoming in Quarterly Review of Economics and Finance 51.4(2011): pp. 368-375
Handle: RePEc:pra:mprapa:34546
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