Payout Policy in the 21th Century: The Data

Abstract

In early 2002, we surveyed 384 financial executives, to determine the factors that drive dividend and share repurchase decisions. Our survey was supplemented by in-depth interviews with an additional 23 executives. The survey consisted of 11 main questions, most with subparts - over 100 questions in total. Although the survey was anonymous, we also collected information on 20 characteristics of the firms and management. We asked questions about firm size, number of employees, industry, CEO education, age of the CEO, CEO tenure, ownership, the proportion of common stock owned by insiders, credit ratings, debt/equity ratios, dividend payout, earnings per share, average price to earnings ratio over the past few years, and the current price of the stock. The analysis was recently published in the September 2005 Journal of Financial Economics (http://ssrn.com/abstract=571046).

Our findings indicate that maintaining the dividend level is on par with investment decisions, while repurchases are made out of the residual cash flow after investment spending. Perceived stability of future earnings still affects dividend policy as in Lintner (1956). However, 50 years later, we find that the link between dividends and earnings has weakened. Many managers now favor repurchases because they are viewed as being more flexible than dividends and can be used in an attempt to time the equity market or to increase earnings per share. Executives believe that institutions are indifferent between dividends and repurchases and that payout policies have little impact on their investor clientele. In general, management views provide little support for agency, signaling, and clientele hypotheses of payout policy. Tax considerations play a secondary role.

We provide new analysis of the survey responses which are conditional on the firm and CEO characteristics. In addition, we provide the codebook and original survey data. This allows researchers to conduct question-conditional analysis. It is now possible to address questions like: given the set of respondents that answered one set of questions in a particular way, what are their responses to other questions? We hope that these data spur future research on payout policy.

Keywords: Payout, Dividend policy, Share repurchases, Survey, Survey data

JEL Classification: G35, G32, G34