Dividend changes and catering incentives

Li, Wei; Lie, Erik

doi:10.1016/j.jfineco.2005.03.005

Cited by 260 publications

(190 citation statements)

References 18 publications

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“…Lie and Li (2005) find support for the catering theory using a sample of firms that increased or decreased dividends between 1963 and 2000. They find that the dividend premium is positively related to both the sign and magnitude of changes in dividends and that this relationship is also manifested in the stock market reaction to these dividend changes.…”

Section: Related Literaturementioning

confidence: 73%

On the Timing of Dividend Initiations

Bulan¹,

Subramanian²,

Tanlu

2005

SSRN Journal

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Section: Related Literaturementioning

confidence: 73%

On the Timing of Dividend Initiations

Bulan¹,

Subramanian²,

Tanlu

2005

SSRN Journal

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“…Baker and Wurgler calculate their main proxy, the value-weighted dividend premium, as the difference in the logarithm of the value-weighted market-to-book ratio (M/B) of dividend payers and nonpayers. Li and Lie (2005) extend the Baker and Wurgler study to show that dividend catering works not only for initiation of dividends, but also for increases and decreases in the level of dividend payments. Li and Lie also find that the capital markets reward managers for paying attention to the investor demand for dividends.…”

Section: Introductionmentioning

confidence: 56%

Catering driven substitution in corporate payouts

Kulchania

2013

Journal of Corporate Finance

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This paper investigates catering as a motivation for substitution between share repurchases and dividend payments. I hypothesize that firms cater to investor demand by repurchasing shares when investors place a premium on the stock price of firms that repurchase shares, and by paying dividends when investors place a higher value on dividend-paying firms. I propose a proxy to measure the relative preference for repurchases over dividends-the difference premium. Results show that the decision to repurchase shares or to pay dividends depends on this premium. Firms channel higher fractions of the additional payout dollars toward share repurchases when this premium is high. The market reaction to dividend changes is more favorable when firms act in accordance with the catering hypothesis. Overall, I find that catering plays a role in the substitution between repurchases and dividends.JEL classification: G35

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“…In particular, we rely on the set of controls used by Li and Lie (2006) Dividend yield is the CRSP annual return from dividend payments. Market capitalization (in billion US dollar and deflated to 1980 using the CPI) is the CRSP market value of equity.…”

Section: Control Variablesmentioning

confidence: 99%

Dividend Changes and Stock Price Informativeness

Cesari

Huang

2014

SSRN Journal

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We investigate how private information in stock prices impacts quarterly dividend changes. We find that the positive relationship between past returns and current dividend changes strengthens when returns convey more private information. This finding is robust to the use of several price informativeness measures and the inclusion of managerial private information and stock overvaluation measures. Managers seem to learn new information from stock prices that they use when deciding on their dividend policy. This study highlights private information in stock prices as an important determinant of dividend policy and contributes to the literature on the real effects of financial markets.

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Dividend changes and catering incentives

Cited by 260 publications

References 18 publications

On the Timing of Dividend Initiations

On the Timing of Dividend Initiations

Catering driven substitution in corporate payouts

Dividend Changes and Stock Price Informativeness

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