Why Individual Investors Want Dividends

53 Pages Posted: 19 Dec 2003

See all articles by Ming Dong

Ming Dong

York University - Schulich School of Business

Chris A. Robinson

York University - Schulich School of Business

Chris Veld

Monash University

Date Written: April 7, 2004

Abstract

The question of why individual investors want dividends is investigated by submitting a questionnaire to a Dutch investor panel. The respondents indicate that they want dividends partly because the cost of cashing in dividends is lower than the cost of selling shares. Their answers provide strong confirmation for the signaling theories of Bhattacharya (1979) and Miller and Rock (1985). They are inconsistent with the uncertainty resolution theory of Gordon (1961, 1962) and the agency theories of Jensen (1986) and Easterbrook (1984). The behavioral finance theory of Shefrin and Statman (1984) is not confirmed for cash dividends but is confirmed for stock dividends. Finally, our results indicate that individual investors do not tend to consume a large part of their dividends. This raises some doubt as to whether a reduction or elimination of dividend taxes will stimulate the economy.

Keywords: dividends, individual investors, survey

JEL Classification: G30, G35, G38

Suggested Citation

Dong, Ming and Robinson, Chris A. and Veld, Chris, Why Individual Investors Want Dividends (April 7, 2004). Available at SSRN: https://ssrn.com/abstract=469021 or http://dx.doi.org/10.2139/ssrn.469021

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

Chris A. Robinson

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

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