Declining Propensity to Pay? A Re-Examination of the Life Cycle Theory
45 Pages Posted: 2 May 2013 Last revised: 5 Feb 2015
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: Suggested Citation