On the Timing of Dividend Initiations

37 Pages Posted: 4 Feb 2004

See all articles by Laarni T. Bulan

Laarni T. Bulan

Cornerstone Research

Narayanan Subramanian

Cornerstone Research - Boston Office

Lloyd Tanlu

Washington and Lee University; Northeastern University

Multiple version iconThere are 2 versions of this paper

Date Written: September 21, 2005


We study the timing and significance of dividend initiations in the life cycle of a firm. We follow a sample of firms from their IPO, and using a hazard model of dividend initiations, examine which firm characteristics are important in predicting initiations. We find that dividend initiators are large and stable firms with relatively high profitability and low growth rates. In this mature stage of their life cycle, these firms generate a lot of cash, but do not find many profitable investment opportunities. Although initiators are mature firms, the event of initiation itself does not signal maturation since neither profitability nor risk changes significantly in the six years around initiation. Exploring further, we find that while reaching maturity increases a firm's propensity to initiate dividends, the firm is also concerned with the premium (or penalty) that attaches to dividend paying stocks. Thus, controlling for life cycle factors, the timing of the initiation and the positive announcement effect are partly explained by the market sentiment for dividends

Keywords: Dividend Initiations, Maturity Hypothesis, Dividend Premium

JEL Classification: G35

Suggested Citation

Bulan, Laarni Tobia and Subramanian, Narayanan and Tanlu, Lloyd D., On the Timing of Dividend Initiations (September 21, 2005). Harvard Business School Negotiation, Organizations and Markets Unit, Research Paper Series, Forthcoming, Available at SSRN: https://ssrn.com/abstract=472943 or http://dx.doi.org/10.2139/ssrn.472943

Laarni Tobia Bulan (Contact Author)

Cornerstone Research ( email )

Boston, MA
United States

Narayanan Subramanian

Cornerstone Research - Boston Office ( email )

699 Boylston Street
Boston, MA 02115
United States
(617) 927-3000 (Phone)
(617) 927-3100 (Fax)

HOME PAGE: http://www.cornerstone.com/

Lloyd D. Tanlu

Washington and Lee University ( email )

Lexington, VA 24450
United States

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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