Unraveling the Dividend Puzzle: A Field Experiment

Xiaoqiao Wang (xiaoqiaowang@cuhk.edu.cn), Jing Xie, Bohui Zhang (bohuizhang@cuhk.edu.cn) and Xiaofeng Zhao (x4zhao@ln.edu.hk)
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Xiaoqiao Wang: School of Management and Economics, Chinese University of Hong Kong, Shenzhen
Bohui Zhang: School of Management and Economics, Chinese University of Hong Kong, Shenzhen
Xiaofeng Zhao: Faculty of Business, Lingnan University

No 202406, Working Papers from University of Macau, Faculty of Business Administration

Abstract: We conduct a field experiment to explore why firms pay dividends. We change managers’perception of agency concerns from outside investors, investors’ risk preference, the information gap with outside investors, and firms’ tax clientele by contacting publicly listed firms in China to test four dividend theories (agency, bird-in-hand, signaling, and tax clientele theories). We find that past payers (firms that paid dividends in the previous year) receiving the treatment of agency concerns increase their dividends relative to the control group. In contrast, firms receiving the other treatments do not experience changes in their dividend policy. The treatment effect of agency concerns in past payers is more prominent for firms with weaker governance and robust to various model specifications. A post-experimental survey confirms our findings. The evidence suggests that the agency cost motive is most pertinent in explaining a firm’s dividend policy.

Keywords: Dividend policy; Field experiment; Agency costs; Investor Relations (search for similar items in EconPapers)
JEL-codes: C93 G34 G35 (search for similar items in EconPapers)
Pages: 84 pages
Date: 2024-06
New Economics Papers: this item is included in nep-cfn and nep-exp
References: View references in EconPapers View complete reference list from CitEc
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