The Effect of Fiduciary Standards and Institutions' Preference for Dividend-Paying Stocks

Financial Management, December 2008

36 Pages Posted: 26 Mar 2005 Last revised: 11 Feb 2010

See all articles by Kristine Watson Hankins

Kristine Watson Hankins

University of Kentucky

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: September 1, 2007

Abstract

Many researchers perceive that the "Prudent Man" standard for fiduciary responsibility causes institutional investors to prefer dividend-paying stocks. However, most states revised their fiduciary standards during the 1990s, replacing Prudent Man constraints with the less-stringent Prudent Investor rules for many institutional investors. We find that the introduction of the Prudent Investor standard is followed by an economically and statistically significant reduction in institutional holdings of dividend-paying stocks. If institutional investors should no longer be assumed to have an exogenous preference for dividend-paying stocks, some conclusions about security returns and corporate behavior from the 1990s may need to be re-considered.

Keywords: institutional investors, dividends, Prudent Man

Suggested Citation

Hankins, Kristine Watson and Flannery, Mark Jeffrey and Nimalendran, Mahendrarajah, The Effect of Fiduciary Standards and Institutions' Preference for Dividend-Paying Stocks (September 1, 2007). Financial Management, December 2008. Available at SSRN: https://ssrn.com/abstract=686966 or http://dx.doi.org/10.2139/ssrn.686966

Kristine Watson Hankins (Contact Author)

University of Kentucky ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

Mark Jeffrey Flannery

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9526 (Phone)
352-392-0301 (Fax)

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