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http://ssrn.com/abstract=887643
 
 

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


Igor Osobov


Georgia State University, Department of Finance

David J. Denis


University of Pittsburgh

May 2007


Abstract:     
In the U.S., Canada, U.K., Germany, France, and Japan, the propensity to pay dividends is higher among larger, more profitable firms, and those for which retained earnings comprise a large fraction of total equity. Although there are hints of reductions in the propensity to pay dividends in most of the sample countries over the 1994 to 2002 period, they are driven by a failure of newly listed firms to initiate dividends when expected to do so. Dividend abandonment and the failure to initiate by existing nonpayers are economically unimportant except in Japan. Moreover, in each country, aggregate dividends have not declined and are concentrated among the largest, most profitable firms. Finally, outside of the U.S. there is little evidence of a systematic positive relation between relative prices of dividend paying and non-paying firms and the propensity to pay dividends. Overall, these findings cast doubt on signaling, clientele, and catering explanations for dividends, but support agency cost-based lifecycle theories.

Number of Pages in PDF File: 52

Keywords: dividends, dividend policy, payout policy, disappearing dividends, earned equity, catering

JEL Classification: G35

working papers series





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Date posted: March 4, 2006  

Suggested Citation

Osobov, Igor and Denis, David J., Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy (May 2007). Available at SSRN: http://ssrn.com/abstract=887643 or http://dx.doi.org/10.2139/ssrn.887643

Contact Information

Igor V. Osobov (Contact Author)
Georgia State University, Department of Finance ( email )
35 Broad St. 12th Fl
Atlanta, GA 30303
United States
David J. Denis
University of Pittsburgh ( email )
Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)
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