The Global Preference for Dividends in Declining Markets

Abstract

Investors globally prefer dividend-paying stocks over non-dividend-paying stocks more in declining than in advancing markets, even accounting for firm-level growth opportunities, size and risk effects. Dividend paying stocks outperform non-dividend paying stocks, from 0.63% (China) to 3.79% (Canada) more per-month in declining than in advancing markets. In declining markets, dividend paying firms outperform by more than any under-performance in advancing markets. The results are robust across dividend taxation regimes, legal environments, emerging and developed markets, periods prior to and after the 2008 global financial crisis, the exclusion of the dividend declaration month and in respect to segmented or integrated international capital markets.

Keywords: Dividend policy, market movement, G-7, BRICS

JEL Classification: G35, F3