What Drives the Disappearing Dividends Phenomenon?

41 Pages Posted: 16 Sep 2011 Last revised: 24 May 2013

See all articles by Jing-Ming Kuo

Jing-Ming Kuo

University of Birmingham - Birmingham Business School

Dennis Philip

Durham University - Department of Economics and Finance

Qingjing Zhang

University of Southampton - Southampton Business School

Date Written: April 1, 2013

Abstract

We study the determinants of dividend payout policy and examine the role of liquidity, risk and catering in explaining the changes in propensity to pay. Our results indicate that risk plays a major role in firms’ dividend policy. The evidence substantiates from a large sample of firms representing eighteen countries over the sample period from 1989 to 2011. For firms in the US, France, UK and Other European markets, liquidity is additionally an important determinant of dividend policy. We find that, although catering incentives persist only among firms in common law countries and not in civil law countries, after adjusting for risk there is little support for catering theory even among firms incorporated in common law countries. Our results indicate that catering incentives reflect the risk-reward relationship in the changing propensity to pay dividends.

Keywords: Catering, Dividend payout policy, Risk; Liquidity, Life-cycle effect

JEL Classification: D22, G15, G30, G35

Suggested Citation

Kuo, Jing-Ming and Philip, Dennis and Zhang, Qingjing, What Drives the Disappearing Dividends Phenomenon? (April 1, 2013). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1928602 or http://dx.doi.org/10.2139/ssrn.1928602

Jing-Ming Kuo

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
University House
Birmingham, Birmingham B15 2TT
United Kingdom

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Qingjing Zhang

University of Southampton - Southampton Business School ( email )

SO17 1BJ
United Kingdom

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