Why Firms Do Not Pay Dividends: The Canadian Experience
H. Kent Baker
American University - Kogod School of Business
University of Ontario Institute of Technology
The University of Ontario Institute of Technology (UOIT)
Queen's School of Business
September 24, 2012
Forthcoming in Journal of Business Finance and Accounting (JBFA)
We use a survey approach to investigate the factors leading to the decision not to pay cash dividends in Canada. Our results show that Canadian managers perceive growth opportunities, low profitability, and cash constraints as the major underlying reasons for a firm’s decision not to pay dividends. Questionnaire results also show that, for non-dividend-paying firms, taxation is at best a second-order determinant of dividend policy and that stock repurchases are not substitutes for dividends. Finally, our findings are inconclusive regarding managers’ views on the relationship between dividend policy and stock prices and the signaling role of dividend policy.
Keywords: Dividend policy, cash dividends, taxation, stock repurchase
JEL Classification: G35Accepted Paper Series
Date posted: September 25, 2012
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