A Catering Theory of Dividends

63 Pages Posted: 13 Mar 2003 Last revised: 30 Jul 2022

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 4 versions of this paper

Date Written: March 2003

Abstract

We develop a theory in which the decision to pay dividends is driven by investor demand. Managers cater to investors by paying dividends when investors put a stock price premium on payers and not paying when investors prefer nonpayers. To test this prediction, we construct four time series measures of the investor demand for dividend payers. By each measure, nonpayers initiate dividends when demand for payers is high. By some measures, payers omit dividends when demand is low. Further analysis confirms that the results are better explained by the catering theory than other theories of dividends.

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey A., A Catering Theory of Dividends (March 2003). NBER Working Paper No. w9542, Available at SSRN: https://ssrn.com/abstract=386171

Malcolm P. Baker (Contact Author)

Harvard Business School ( email )

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

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Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
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New York, NY 10012-1126
United States
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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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