Institutional Holdings, Investment Opportunities and Dividend Policy

The Quarterly Review of Economics and Finance (2017) Vol 64, 151-161 DOI:10.1016/j.qref.2016.06.008

32 Pages Posted: 26 Feb 2020

See all articles by Wei Huang

Wei Huang

College of Saint Benedict (CSB) and Saint John's University (SJU)

Donna L. Paul

Washington State University

Date Written: 2017

Abstract

This paper examines the relationship between institutional holdings and dividend policy by jointly considering investment style and firms’ growth opportunities. It helps to resolve the apparent low-dividend-preference puzzle in which institutional investors have higher holdings in dividend-paying firms, but among dividend payers, prefer firms that pay low dividends. We find that, controlling for style, institutional investors’ preferences for dividends are based on whether payout levels are consistent with firms’ needs to fund growth opportunities. High payout is preferred for firms with low growth opportunities, and low or no payout is preferred for firms with high growth opportunities. The results enhance our understanding of payout preferences of institutions by demonstrating the interactions of investment opportunities and investing style with respect to institutional investors’ payout preferences.

Keywords: dividend policy, payout policy, investment opportunities, institutional investors, institutional investor style

JEL Classification: G20, G32, G35

Suggested Citation

Huang, Wei and Paul, Donna L., Institutional Holdings, Investment Opportunities and Dividend Policy (2017). The Quarterly Review of Economics and Finance (2017) Vol 64, 151-161 DOI:10.1016/j.qref.2016.06.008, Available at SSRN: https://ssrn.com/abstract=3527809

Wei Huang

College of Saint Benedict (CSB) and Saint John's University (SJU) ( email )

P.O. Box 2000
St. Joseph and Collegeville, MN 56321
United States

Donna L. Paul (Contact Author)

Washington State University ( email )

Carson College of Business
WA
United States

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