Declining Propensity to Pay? A Re-Examination of the Life Cycle Theory
University of Virginia (UVA) - McIntire School of Commerce
Kathleen M. Kahle
University of Arizona - Department of Finance
February 22, 2014
Journal of Corporate Finance, Vol. 27 (2014) 345-366
Our results indicate that the declining propensity to pay is a function of the changing composition of firms over time and not a declining propensity in individual firms themselves. In particular, the propensity to pay is greater than expected following the 2003 dividend tax cut. The decade a firm went public is also a major determinant of its initial payout policy. Finally, while the strength of the relation between earned/contributed capital and payout propensity declines across IPO decades, there is still a lifecycle effect - within a given IPO cohort, the likelihood of payout increases as firms age.
Number of Pages in PDF File: 45
Keywords: Dividends, Repurchases, Payout policy, Earned equity, Lifecycle Theory
JEL Classification: G35
Date posted: May 2, 2013 ; Last revised: February 5, 2015
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