A Catering Theory of Dividends

63 Pages Posted: 3 Nov 2008

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: November 2002

Abstract

We develop a theory in which the decision to pay dividends is driven by investor demand.Managers cater to investors by paying dividends when investors put a stock price premium on payers and not paying when investors prefer non payers. To test this prediction, we construct four time series measures of the investor demand for dividend payers. By each measure, non payers initiate dividends when demand for payers is high. By some measures, payers omit dividends when demand is low. Further analysis confirms that the results are better explained by thecatering theory than other theories of dividends.

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey A., A Catering Theory of Dividends (November 2002). NYU Working Paper No. FIN-02-012. Available at SSRN: https://ssrn.com/abstract=1294182

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
200
Abstract Views
1,817
rank
11,568
PlumX Metrics