A Global Investigation of Dividend Yields: Shareholder Demand, Agency Problems, and Market Quality

Abstract

We compare cross-sectional variation of dividend yields of companies across 32 countries. Beyond the impact of firm-specific accounting and financial variables, this study investigates how the variations in country level variables affect dividend payout policies. The country level variables include shareholder demand due to demographic variations and consumption needs, agency problems manifested in the extent of minority shareholder protection and business disclosures, and market quality in terms of transparency and liquidity. We find that dividend yields are higher when diverse shareholder demands are strong, extents of business disclosures and legal protections are weak, and the market qualities are poor. The empirical evidence supports the demand-based theory in a global setting and the essence of bird-in-the-hand theory - the more the uncertainty the stronger the preference for dividend payout.

Keywords: dividends, investor demand, market quality, agency cost

JEL Classification: G35, G30