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Declining Propensity to Pay? A Re-Examination of the Life Cycle Theory

45 Pages Posted: 2 May 2013 Last revised: 5 Feb 2015

Monica Banyi

University of Idaho - Department of Accounting

Kathleen M. Kahle

University of Arizona - Department of Finance

Date Written: February 22, 2014

Abstract

Our results indicate that the declining propensity to pay is a function of the changing composition of firms over time and not a declining propensity in individual firms themselves. In particular, the propensity to pay is greater than expected following the 2003 dividend tax cut. The decade a firm went public is also a major determinant of its initial payout policy. Finally, while the strength of the relation between earned/contributed capital and payout propensity declines across IPO decades, there is still a lifecycle effect - within a given IPO cohort, the likelihood of payout increases as firms age.

Keywords: Dividends, Repurchases, Payout policy, Earned equity, Lifecycle Theory

JEL Classification: G35

Suggested Citation

Banyi, Monica and Kahle, Kathleen M., Declining Propensity to Pay? A Re-Examination of the Life Cycle Theory (February 22, 2014). Journal of Corporate Finance, Vol. 27 (2014) 345-366. Available at SSRN: https://ssrn.com/abstract=2258895 or http://dx.doi.org/10.2139/ssrn.2258895

Monica L. Banyi

University of Idaho - Department of Accounting ( email )

United States

Kathleen M. Kahle (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)

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