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Why Individual Investors Want Dividends

Author Info

Listed author(s):
  • 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)

Abstract

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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File URL: http://econwpa.repec.org/eps/fin/papers/0412/0412009.pdf
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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
Handle: RePEc:wpa:wuwpfi:0412009
Note: Type of Document - pdf; pages: 53
Contact details of provider: Web page: http://econwpa.repec.org

Keywords: Dividends; individual investors; survey;

Other versions of this item:

Find related papers by JEL classification:
  • G30 - Financial Economics - - Corporate Finance and Governance - - - General
  • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
  • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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Cited by:

  1. Huang-Meier, Winifred & Freeman, Mark C., 2015. "Aggregate dividends and consumption smoothing," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 324-335.
  2. Tom Van Caneghem, 2011. "Intra-industry conformity in dividend policy," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 492-516, May.
  3. Aerts, Walter & Campenhout, Geert Van & Caneghem, Tom Van, 2008. "Clustering in dividends: Do managers rely on cognitive reference points?," Journal of Economic Psychology, Elsevier, vol. 29(3), pages 276-284, June.
  4. Mori, Naoya & Ikeda, Naoshi, 2015. "Majority support of shareholders, monitoring incentive, and dividend policy," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 1-10.
  5. Lee, Boram & Veld-Merkoulova, Yulia, 2016. "Myopic loss aversion and stock investments: An empirical study of private investors," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 235-246.
  6. Krieger, Kevin & Lee, Bong-Soo & Mauck, Nathan, 2013. "Do senior citizens prefer dividends? Local clienteles vs. firm characteristics," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 150-165.
  7. Kuzucu, Narman, 2015. "A survey of managerial perspective on corporate dividend policy: evidence from Turkish listed firms," MPRA Paper 69801, University Library of Munich, Germany.
  8. P. Du Jardin & E. Séverin, 2011. "Dividend policy," Post-Print hal-00801923, HAL.
  9. David, Thomas & Ginglinger, Edith, 2016. "When cutting dividends is not bad news: The case of optional stock dividends," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 174-191.
  10. Korkeamaki, Timo & Liljeblom, Eva & Pasternack, Daniel, 2010. "Tax reform and payout policy: Do shareholder clienteles or payout policy adjust?," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 572-587, September.
  11. Sheng Guo & William Hardin, 2015. "Financial and Housing Wealth, Expenditures and the Dividend to Ownership," Working Papers 1506, Florida International University, Department of Economics.
  12. Kaustia, Markku & Rantapuska, Elias, 2012. "Rational and behavioral motives to trade: Evidence from reinvestment of dividends and tender offer proceeds," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2366-2378.
  13. Veld-Merkoulova, Yulia V., 2011. "Investment horizon and portfolio choice of private investors," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 68-75, April.
  14. Veld, Chris & Veld-Merkoulova, Yulia V., 2008. "The risk perceptions of individual investors," Journal of Economic Psychology, Elsevier, vol. 29(2), pages 226-252, April.
  15. André Schmidt, 2017. "Determinants of Corporate Voting – Evidence from a Large Survey of German Retail Investors," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(1), pages 71-103, February.
  16. Thitima Sitthipongpanich, 2016. "The influence of the CEO and the largest shareholder on dividend payout policy in Thailand," Proceedings of Business and Management Conferences 3405493, International Institute of Social and Economic Sciences.
  17. Sheng Guo & William G. Hardin, 2017. "Financial and Housing Wealth, Expenditures and the Dividend to Ownership," The Journal of Real Estate Finance and Economics, Springer, vol. 54(1), pages 58-96, January.
  18. Akhtar, Muhammad Naeem & Hunjra, Ahmed Imran & Andleeb, Arifa & Butt, Babar Zaheer, 2011. "Individual investors perception of dividends: Pakistan’s percpective," MPRA Paper 40682, University Library of Munich, Germany.
  19. Jasim Al-Ajmi, 2009. "Investors' use of corporate reports in Bahrain," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(3), pages 266-289, March.

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