Lazy Dividends

50 Pages Posted: 17 Sep 2020 Last revised: 29 Jul 2021

See all articles by Patrick J. Dennis

Patrick J. Dennis

University of Virginia - McIntire School of Commerce

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: July 28, 2021

Abstract

Corporate dividends cluster on increments of 5, like 25, 50, and 75. Firms that pay dividends on these "prominent" amounts have lower operating performance and five-factor alphas 60 b.p. per year lower compared to firms whose dividends are not increments of 5. Consistent with agency frictions that reduce managerial effort and lead to lazy decisions, we find that clustering effects are stronger for entrenched firms, with more market power, and low levels of shareholder activism. Dividend increases also tend to cluster more than cuts, consistent with saliency bias. Our results complement a number of recent studies showing the economic importance of simple decision heuristics.

Keywords: Dividends, Rounding, Clustering, Agency

JEL Classification: G30, G35, G02

Suggested Citation

Dennis, Patrick J. and Weston, James Peter, Lazy Dividends (July 28, 2021). Available at SSRN: https://ssrn.com/abstract=3659917 or http://dx.doi.org/10.2139/ssrn.3659917

Patrick J. Dennis

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-4050 (Phone)

James Peter Weston (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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