Working Paper: NBER ID: w9995
Authors: Malcolm Baker; Jeffrey Wurgler
Abstract: We document a close link between fluctuations in the propensity to pay dividends and catering incentives. First, we use the methodology of Fama and French (2001) to identify a total of four distinct trends in the propensity to pay dividends between 1963 and 2000. Second, we show that each of these trends lines up with a corresponding fluctuation in catering incentives: The propensity to pay increases when a proxy for the stock market dividend premium is positive and decreases when it is negative. The lone disconnect is attributable to Nixon-era controls.
Keywords: dividends; catering incentives; investor demand; dividend premium
JEL Codes: G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Dividend Premium (G35) | Propensity to Pay Dividends (G35) |
| Negative Dividend Premium (G35) | Propensity to Pay Dividends (G35) |
| Propensity to Pay Dividends (G35) | Relative Stock Returns of Payers and Nonpayers (G35) |
| Sustained Negative Dividend Premium (G35) | Decline in Propensity to Pay Dividends (G35) |