I contend that stock market development has substantially contributed to the decline of dividend payers worldwide. Using data from 31 countries, my research shows that stock market development makes firms in countries with a relatively high dependence on stock market financing less likely to pay dividends, to pay less, and more likely to omit. These results also are robust to the sample selection, the time‐varying firm characteristics, and the differences in legal systems, capital market scales, and country‐level information disclosure.

By using the signaling model and the life-cycle theory, I examine the importance of prior payment status in determining the likelihood to pay dividends. I categorize firms into those that paid dividends previously and those that did not. My results show that strong dividend stickiness exists and the determinants to pay differ significantly for the two groups of firms. High growth and low insider holdings make prior payers more likely to pay but prior nonpayers less likely to pay. Furthermore, prior payers are more sensitive to profitability and earned/contributed equity mix, while prior nonpayers are more sensitive to risk and dividend premiums. Finally, taking the prior payment status into account eliminates the problem of overestimating the portion of payers put forth by previous studies. Copyright (c) 2010, The Eastern Finance Association.

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I argue that paying dividends before issuing new stock can increase the stock price in the case when firms announce dividend payments and new stock issuance contemporaneously. It enables issuing firms to disentangle the agency problem of paying dividends by newly-raised funds from dividend information for new stock issuances. I employ the seasoned offerings of Taiwan listed firms as the sample, because of their practice of paying dividends once a year. The conditional event study strongly supports this argument and explains why previous studies fail to detect the information conveyed by dividends for new stock issuances.