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Why Individual Investors Want Dividends

  • Ming Dong

    (York University - Schulich School of Business)

  • Chris Robinson

    (York University - Atkinson School of Administrative Studies)

  • Chris Veld

    (Simon Fraser University - Faculty of Business Administration)

The question of why individual investors want dividends is investigated by submitting a questionnaire to a Dutch investor panel. The respondents indicate that they want dividends partly because the cost of cashing in dividends is lower than the cost of selling shares. Their answers provide strong confirmation for the signaling theories of Bhattacharya (1979) and Miller and Rock (1985). They are inconsistent with the uncertainty resolution theory of Gordon (1961, 1962) and the agency theories of Jensen (1986) and Easterbrook (1984). The behavioral finance theory of Shefrin and Statman (1984) is not confirmed for cash dividends but is confirmed for stock dividends. Finally, our results indicate that individual investors do not tend to consume a large part of their dividends. This raises some doubt as to whether a reduction or elimination of dividend taxes will stimulate the economy.

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Paper provided by EconWPA in its series Finance with number 0412009.

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Length: 53 pages
Date of creation: 04 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0412009
Note: Type of Document - pdf; pages: 53
Contact details of provider: Web page: http://econwpa.repec.org

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