Retail Clientele and Dividend Policy

32 Pages Posted: 21 Feb 2014 Last revised: 28 Apr 2020

See all articles by Dermot Murphy

Dermot Murphy

University of Illinois at Chicago

Ramabhadran S. Thirumalai

Indian School of Business

Date Written: March 8, 2016


Firms change their dividend policy following changes in their retail trading clientele. Using stock splits as an instrument, we find that a stock split leads to a 5.5 percentage point increase in the proportion of retail trading volume, which subsequently leads to a 0.10 percentage point decrease in the dividend yield and a 1.9 percentage point increase in annualized return volatility. The increase in retail trading clientele following a stock split is partially explained by the arrival new retail investors with a preference for low-priced shares. Financial market activity has impact on the real decisions of the firm.

Keywords: dividend policy, retail clientele, trader behavior, stock splits

JEL Classification: G1, G14, G30

Suggested Citation

Murphy, Dermot and Thirumalai, Ramabhadran S., Retail Clientele and Dividend Policy (March 8, 2016). Indian School of Business, Available at SSRN: or

Dermot Murphy

University of Illinois at Chicago ( email )

2114 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
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Ramabhadran S. Thirumalai (Contact Author)

Indian School of Business ( email )

Hyderabad, Andhra Pradesh 500 032
+91 (40) 2318 7151 (Phone)
+91 (40) 2300 7017 (Fax)

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