Abstract

http://ssrn.com/abstract=98568
 
 

References (27)



 
 

Citations (22)



 


 



Did ERISA's Prudent Man Rule Change the Pricing of Dividend Omitting Firms?


Alon Brav


Duke University - Fuqua School of Business

J.B. Heaton


Independent; Bartlit Beck Herman Palenchar & Scott LLP

May 1998


Abstract:     
The Employee Retirement Income Security Act of 1974 (ERISA) subjected private pension fund managers to a strict "prudent man" rule. We show that dividend omitting firms underperform only after this law took effect, and that many institutional investors stop holding stocks that omit dividends in the post-ERISA sample period. If a firm reinitiates a dividend, then both effects reverse. Our results illustrate the role law may play in limiting arbitrage and segmenting markets. This may shed light on the failure of dividend omitting firms to behave like other value stocks in the post-ERISA sample period, a failure that provides a serious challenge to both behavioral and rational theories.

Number of Pages in PDF File: 27

JEL Classification: G12, G18, G23

working papers series


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Date posted: June 14, 1998  

Suggested Citation

Brav, Alon and Heaton, J.B., Did ERISA's Prudent Man Rule Change the Pricing of Dividend Omitting Firms? (May 1998). Available at SSRN: http://ssrn.com/abstract=98568 or http://dx.doi.org/10.2139/ssrn.98568

Contact Information

Alon Brav
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-2908 (Phone)
919-684-2818 (Fax)
J.B. Heaton (Contact Author)
Independent
No Address Available
Bartlit Beck Herman Palenchar & Scott LLP ( email )
Courthouse Place
54 West Hubbard Street
Chicago, IL 60610
United States
312-494-4425 (Phone)
312-494-4440 (Fax)
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