Why are Dividends Disappearing? An Empirical Analysis

65 Pages Posted: 4 Nov 2008

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 6 versions of this paper

Date Written: November 2002

Abstract

We investigate the causes of time-series fluctuations in the propensity to pay dividends,including the post-1978 decline documented by Fama and French (2001). We consider explanations based on fluctuations in dividend clienteles, agency problems, information asymmetries, executive stock options, catering incentives, tax code awareness, and short-lived idiosyncratic factors. To evaluate these explanations, we conduct three styles of analysis. First, we count and classify influences on the propensity to pay that were noted in the financial press. Second, we examine time-series relationships between the propensity to pay and proxies for the driving influences in the candidate explanations. Third, we assess whether the candidate explanations are theoreticallycompatible with related time-series patterns involving dividend policy. Overall, theresults are most consistent with the catering explanation. Notably, catering incentives,as measured by the stock market "dividend premium," roughly line up with the four trends in the propensity to pay between 1963 and 2000 and are able to account for the observed magnitude of the post-1978 decline. There is also evidence that idiosyncratic factors, including the Nixon-era dividend controls and the recent growth in options, affected the propensity to pay in specific periods.

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey A., Why are Dividends Disappearing? An Empirical Analysis (November 2002). NYU Working Paper No. S-CG-02-09, Available at SSRN: https://ssrn.com/abstract=1295257

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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