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Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy

52 Pages Posted: 4 Mar 2006  

Igor Osobov

Georgia State University, Department of Finance

David J. Denis

University of Pittsburgh

Date Written: May 2007

Abstract

In the U.S., Canada, U.K., Germany, France, and Japan, the propensity to pay dividends is higher among larger, more profitable firms, and those for which retained earnings comprise a large fraction of total equity. Although there are hints of reductions in the propensity to pay dividends in most of the sample countries over the 1994 to 2002 period, they are driven by a failure of newly listed firms to initiate dividends when expected to do so. Dividend abandonment and the failure to initiate by existing nonpayers are economically unimportant except in Japan. Moreover, in each country, aggregate dividends have not declined and are concentrated among the largest, most profitable firms. Finally, outside of the U.S. there is little evidence of a systematic positive relation between relative prices of dividend paying and non-paying firms and the propensity to pay dividends. Overall, these findings cast doubt on signaling, clientele, and catering explanations for dividends, but support agency cost-based lifecycle theories.

Keywords: dividends, dividend policy, payout policy, disappearing dividends, earned equity, catering

JEL Classification: G35

Suggested Citation

Osobov, Igor and Denis, David J., Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy (May 2007). Available at SSRN: https://ssrn.com/abstract=887643 or http://dx.doi.org/10.2139/ssrn.887643

Igor V. Osobov (Contact Author)

Georgia State University, Department of Finance ( email )

35 Broad St. 12th Fl
Atlanta, GA 30303
United States

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

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