Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy*

15693 WordsFeb 21, 201263 Pages
Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy* DAVID J. DENIS** Krannert School of Management Purdue University West Lafayette, IN 47907 djdenis@purdue.edu IGOR OSOBOV Georgia State University Department of Finance Atlanta, GA 30303 iosobov@gsu.edu May, 2007 We thank Yakov Amihud, Harry DeAngelo, Linda DeAngelo, Diane Denis, Jim Hsieh, Omesh Kini, Erik Lie, John McConnell, Lalitha Naveen, Raghu Rau, Steve Smith, Jeff Wurgler, an anonymous referee, and seminar participants at Colorado, Georgia State, and Purdue for helpful comments. ** * Corresponding author. Electronic copy available at: http://ssrn.com/abstract=887643 Why do Firms Pay Dividends? International Evidence…show more content…
more firms exhibit characteristics similar to those of non-dividend-paying firms), Fama and French nonetheless report that once they control for these characteristics, they still find a significant decline in the residual propensity to pay dividends. This evidence poses a further challenge to dividend theories in so far as candidate theories should be able to explain time series changes in the propensity to pay dividends. We extend this literature by examining cross-sectional and time-series evidence on the propensity to pay dividends in several developed financial markets - the United States (U.S.), Canada, the United Kingdom (U.K.), Germany, France, and Japan - over the period 1989 to 2002. Specifically, we examine (i) whether the characteristics of dividend payers and nonpayers are common across countries; (ii) whether these characteristics have changed over time; and (iii) whether firms in other countries exhibit a declining propensity to pay dividends in recent years. In addition, the use of international data allows us to provide further tests of the life cycle, signaling, clientele, and catering explanations by analyzing the concentration of dividend payments as well as the association between Baker and Wurgler’s (2004a,b) dividend premium and the propensity to pay dividends in other countries. Our evidence reveals common determinants of dividends across countries. Like Fama and French (2001), we find

More about Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy*

Open Document