Demographics, dividend clienteles and the dividend premium

King Fuei Lee

MPRA Paper from University Library of Munich, Germany

Abstract: The catering theory of dividends proposed that corporate dividend policy is driven by prevailing investor demand for dividend payers, and that managers cater to investors by paying dividends when the dividend premium is high. While earlier research found that the dividend premium is not driven by traditional clienteles derived from market imperfections such as taxes, transaction costs, or institutional investment constraints, we find empirical evidence that demographic clienteles are an important source of the time-varying demand for dividend payers. In particular, we find that, as consistent with the behavioural life-cycle theory and the marginal opinion theory of stock price, the dividend premium is positively driven by demographic clientele variation represented by changes in the proportion of the older population. Our results are robust when controlled for the factors of investor sentiment, signalling, agency costs and time trend.

Keywords: Dividend policy; demographics; dividend premium; dividend clienteles (search for similar items in EconPapers)
JEL-codes: G00 G35 (search for similar items in EconPapers)
Date: 2010-12
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Forthcoming in Quarterly Review of Economics and Finance 51.4(2011): pp. 368-375

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Journal Article: Demographics, dividend clienteles and the dividend premium (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:34546

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