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

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

See all articles by Monica Banyi

Monica Banyi

Gonzaga University

Kathleen M. Kahle

University of Arizona - Department of Finance; European Corporate Governance Institute (ECGI)

Date Written: February 22, 2014


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 L. 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: or

Monica L. Banyi

Gonzaga University ( email )

United States

Kathleen M. Kahle (Contact Author)

University of Arizona - Department of Finance ( email )

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United States
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European Corporate Governance Institute (ECGI) ( email )

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