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A Catering Theory of Dividends

The Journal of finance (New York), 2004-06, Vol.59 (3), p.1125-1165 [Peer Reviewed Journal]

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Title:
A Catering Theory of Dividends
Author: Baker, Malcolm ; Wurgler, Jeffrey
Subjects: Cash ; Catering ; Discounts ; Dividends ; Income taxes ; Investors ; Mathematical models ; Price premiums ; Stock dividends ; Stock prices ; Stock shares ; Studies
Is Part Of: The Journal of finance (New York), 2004-06, Vol.59 (3), p.1125-1165
Description: We propose that the decision to pay dividends is driven by prevailing investor demand for dividend payers. Managers cater to investors by paying dividends when investors put a stock price premium on payers, and by not paying when investors prefer nonpayers. To test this prediction, we construct four stock price-based measures of investor demand for dividend payers. By each measure, nonpayers tend to initiate dividends when demand is high. By some measures, payers tend to omit dividends when demand is low. Further analysis confirms that these results are better explained by catering than other theories of dividends.
Publisher: 350 Main Street , Malden , MA 02148 , USA and 9600 Garsington Road , Oxford OX4 2DQ , UK: Blackwell Publishing, Inc
Language: English
Identifier: ISSN: 0022-1082
EISSN: 1540-6261
DOI: 10.1111/j.1540-6261.2004.00658.x
CODEN: JLFIAN
Source: Alma/SFX Local Collection

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