Peer Influence on Payout Policies

57 Pages Posted: 6 Nov 2017 Last revised: 10 Dec 2017

See all articles by Binay Adhikari

Binay Adhikari

University of Texas at San Antonio

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Date Written: December 8, 2017

Abstract

Using a large sample of US public companies, we find robust evidence that firms’ payout policies, i.e., dividends and share repurchases, are significantly influenced by the policies of their industry peers. To overcome endogeneity problems, we employ instrumental variable techniques based on peers’ stock price shocks. Peer influence on payouts is more pronounced among firms that face greater product market competition and operate in better information environments. With regards to dividends, firms, especially smaller and younger firms, are more sensitive to industry peers that are similar to them in size and age. However, mimicking repurchases is concentrated among large and mature firms only. Peer influence on dividends, compared to repurchases, seems more stable across firm and industry conditions. Overall, peer influence on dividends, and, to a less extent, on repurchases, is consistent with a rivalry-based theory of imitation, which posits that firms imitate peers’ actions to maintain their competitive parity.

Keywords: Dividend policy; Repurchase policy; Peer effects; Mimicking; Imitation

JEL Classification: G35

Suggested Citation

Adhikari, Binay Kumar and Agrawal, Anup, Peer Influence on Payout Policies (December 8, 2017). Journal of Corporate Finance, 2018, Available at SSRN: https://ssrn.com/abstract=3064848 or http://dx.doi.org/10.2139/ssrn.3064848

Binay Kumar Adhikari

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
2104585349 (Phone)

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
139
Abstract Views
743
rank
260,096
PlumX Metrics