Corporate Payout Policy and Changes in Housing Prices

58 Pages Posted: 14 Oct 2011 Last revised: 23 May 2015

Samir Saadi

Queen's School of Business

Kose John

New York University (NYU) - Department of Finance

Xiaoya (Sara) Ding

University of San Francisco - School of Management

Yang Ni

Shanghai Jiao Tong University (SJTU)

Date Written: October 14, 2011

Abstract

We study how corporate payout policy responds to changing investor tastes for non-dividend over dividend paying stocks following an increase in housing prices. Exploiting the crossregional dispersion in housing prices within the U.S. market, we find a significant negative effect of growth in housing prices on local firm’s propensity to pay and to initiate dividends, and on its dividend yield, payout ratio as well as total payout. Such housing effect is particularly strong for small firms, young firms, volatile firms, and low profitability firms. Our findings are insensitive to the choice of model specification and estimation method. They are also robust to controlling for several firm-specific variables, macro-economic variables, market sentiment, and dividend premium (proxy for dividend catering). In contrast to recent criticisms against catering theory, we find that dividend premium loads positively at state level. Moreover, we report weaker market reactions to dividend changes when local housing prices increase. This study is the first to establish a relationship between growth in housing prices and corporate policy decisions. It also introduces geography as a determinant of payout policy.

Keywords: Corporate Payout Policy, Housing Prices, Housing Wealth, Local Bias, Dividend Clientele, Geography and dividends

JEL Classification: G10, G14, G34, G39

Suggested Citation

Saadi, Samir and John, Kose and Ding, Xiaoya (Sara) and Ni, Yang, Corporate Payout Policy and Changes in Housing Prices (October 14, 2011). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=1944114 or http://dx.doi.org/10.2139/ssrn.1944114

Samir Saadi (Contact Author)

Queen's School of Business ( email )

Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Xiaoya (Sara) Ding

University of San Francisco - School of Management ( email )

San Francisco, CA 94117
United States

Yang Ni

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

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