Unraveling the Dividend Puzzle: A Field Experiment

76 Pages Posted: 28 Oct 2022 Last revised: 6 Dec 2022

See all articles by Xiaoqiao Wang

Xiaoqiao Wang

The Chinese University of Hong Kong, Shenzhen

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Xiaofeng Zhao

Lingnan University - Department of Finance and Insurance

Date Written: October 23, 2022

Abstract

We conduct a field experiment to explore why firms pay dividends. We change managers’ perception on agency concerns from outside investors, investors’ risk preference, the information gap with outside investors, and firms’ tax clientele by contacting publicly listed firms in China to test four dividend theories (agency, bird-in-hand, signaling, and tax clientele theories). We find that past payers (firms that paid dividends in the previous year) receiving the treatment of agency concerns increase their dividends relative to the control group. In contrast, firms receiving the other treatments do not experience changes in their dividend policy. The treatment effect of agency concerns in past payers is more prominent for firms with weaker governance and robust to various model specifications. The evidence suggests that the agency cost motive is the main determinant of a firm’s dividend policy.

Keywords: Dividend policy, Field experiment, Agency costs, Investor Relations

JEL Classification: G35, C93, G34

Suggested Citation

Wang, Xiaoqiao and Xie, Jing and Zhang, Bohui and Zhao, Xiaofeng, Unraveling the Dividend Puzzle: A Field Experiment (October 23, 2022). Available at SSRN: https://ssrn.com/abstract=4255987 or http://dx.doi.org/10.2139/ssrn.4255987

Xiaoqiao Wang

The Chinese University of Hong Kong, Shenzhen ( email )

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Bohui Zhang (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Xiaofeng Zhao

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Rd
Tuen Mun
Hong Kong

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