Heaping on Dividends: The Role of Dividend Size and Information Uncertainty

Why do firms heap dividends? New evidence on the key role of firm characteristics

“…Recently, heaping in managerial dividend distribution decisions has been studied because of the fact that dividends have a precise and direct impact on both the capital remaining available within a firm and the cash flow stream received by investors. Castillo et al (2020) and Jakob et al (2021), Jakob and Nam (2020), Nam et al (2018) examine dividend distributions in Australia, the USA, four Latin American countries, and four European countries respectively. These studies all report significant heaping.…”

“…These studies all report significant heaping. Nam et al (2018), andNam (2020) show that both the dividend magnitude and the level of information uncertainty impact the likelihood that managers choose to pay dividends in rounded intervals. Castillo et al (2020) identify that the currency magnitude, measured as the strength of each currency relative to the US dollar, also significantly impacts the likelihood of heaping.…”

“…In this paper, we extend the academic literature that examines how cognitive biases can influence corporate decisions regarding dividend allotment. The first contribution of this paper is that it combines the theories of heaping developed by Jakob and Nam (2020) with the findings of Denis and Osobov (2008) which suggest that the likelihood of paying dividends would be related to the size, profitability and other characteristics of the companies. By combining these ideas, we develop a more robust model that allows us to better explain why firm managers heap their dividends.…”

“…(2020) and Jakob et al. (2021), Jakob and Nam (2020), Nam et al. (2018) examine dividend distributions in Australia, the USA, four Latin American countries, and four European countries respectively.…”

“…There is a recent and growing line of academic research that examines the heaping heuristic within a corporate accounting and finance framework (Bamber et al., 2010; Dechow & You, 2012; Herrmann & Thomas, 2005). Jakob & Nam (2020) study the distribution of cash dividends in the US and report that 51% of dividends are rounded or clustered at specific intervals consistent with heaping in a base ten numbering system. They report that the probability of rounding to a heaped value is significantly and positively related to the size of the dividend distributed.…”