Dividends and Investment: Evidence of Heterogeneous Firm Behavior

27 Pages Posted: 12 Mar 2015

See all articles by Aparna Mathur

Aparna Mathur

American Enterprise Institute (AEI)

Nirupama Rao

University of Michigan, Stephen M. Ross School of Business

Michael R. Strain

American Enterprise Institute; IZA

Stan Veuger

American Enterprise Institute

Date Written: February 1, 2015

Abstract

This paper investigates the relationship between dividend payouts and corporate investment. We find significant heterogeneity in the relationship across firms — heterogeneity that helps reconcile competing results in the literature. Drawing on financial filing data from Compustat, we first broadly replicate the statistically significant negative relationship estimated by Auerbach and Hassett (2003). We show that this relationship does not hold if the variation is restricted to within-firm only. Our null results suggest a relatively precise zero estimate for the mean firm. Next we investigate heterogeneity in the relationship between dividends and investment. Using quantile regression methods, we find that this negative relationship is concentrated at the top of dividends distribution: only firms from the 70th percentile and above exhibit a strongly negative relationship, and it is these firms that drive the negative estimates of pooled OLS regressions reported in prior work.

Keywords: Dividends, Investment

JEL Classification: G35, H32

Suggested Citation

Mathur, Aparna and Rao, Nirupama and Strain, Michael and Veuger, Stan, Dividends and Investment: Evidence of Heterogeneous Firm Behavior (February 1, 2015). NYU Wagner Research Paper No. 2575860, Available at SSRN: https://ssrn.com/abstract=2575860 or http://dx.doi.org/10.2139/ssrn.2575860

Aparna Mathur

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202-868-6026 (Phone)

HOME PAGE: http://www.aei.org/scholar/aparna-mathur/

Nirupama Rao (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

Ann Arbor, MI
United States

Michael Strain

American Enterprise Institute ( email )

1789 Massachusetts Ave NW
Washington, DC 20036
United States

HOME PAGE: http://sites.google.com/site/mrstrain/

IZA ( email )

Stan Veuger

American Enterprise Institute ( email )

1789 Massachusetts Ave NW
Washington, DC 20036
United States

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