Why individual investors want dividends

Abstract

The question of why individual investors want dividends is investigated by submitting a questionnaire to a Dutch investor panel. The respondents indicate that they want dividends partly because the cost of cashing in dividends is lower than the cost of selling shares. Their answers provide strong confirmation for the signaling theories of Bhattacharya (1979) and Miller and Rock (1985). They are inconsistent with the uncertainty resolution theory of Gordon (1961Gordon ( , 1962 and the agency theories of Jensen (1986) and Easterbrook (1984). The behavioral finance theory of Shefrin and Statman (1984) is not confirmed for cash dividends but is confirmed for stock dividends. Finally, our results indicate that individual investors do not tend to consume a large part of their dividends. This raises some doubt as to whether a reduction or elimination of dividend taxes will stimulate the economy.JEL classification: G30; G35; G38

Effect of Dividend Payment on Stock Prices of Commercial Banks in Nepal: Panel Approach

“…This relevancy theory is supported by various empirical studies like Travlos et al (2001), Baker et al (2002), Myers and Frank (2004), Dong et al (2005), Maditinos et al (2007), where they conclude that payment of dividend affects share price. Moreover, Pradhan (2003), Nazir, Nawaz, Anwar and Ahmed (2010), Michael and Benson (2014), Oliver, Loretta and Grace (2016) conclude that dividend payments have strong relationship with stock prices.…”

“…The author contends that investors always prefer secure and current income in the form of dividends over capital gains. Various studies such as Travlos, Trigeorgis, and Vafeas (2001), Baker, Powell, and Veit (2002), Myers and Frank (2004), Dong, Robinson, and Veld (2005), Maditinos, Sevic, Theriou, and Tsinani (2007) have supported dividend relevance theory. Gustavo and Michaely (2007) conclude that changes in dividend policy convey news about future cash flows; specifically, dividend increases convey good news and dividend decreases convey bad news.…”

Myopic loss aversion and stock investments: An empirical study of private investors

“…It consists of over 2,000 households including individuals over 16 years of age and representative of the Dutch population in respect of a number of important demographic characteristics. This panel has been used extensively in academic research; for instance, Van Rooij, Lusardi, and Alessie (2011;2012) use it to study the effects of financial literacy on individual stock market participation and wealth, Dong, Robinson, and Veld (2005) study the preferences of individual investors on dividend payments, and Guiso, Sapienza, and Zingales (2008) investigate the relationship between trust and stock market participation.…”

A Survey of Managerial Perspective on Corporate Dividend Policy: Evidence from Turkish Listed Firms

“…Thus, the results of BBM do not support La Porta, Lopez-De-Silanes, Shleifer and Vishny (2000) who proposed a positive relation between legal protection of investors and dividend policies. Dong, Robinson, and Veld (2005) conducted a survey on individual investors to investigate why investors want dividends. They asked questions about personal finance and consumption patterns to more than 2,000 individual investors in the Netherlands.…”

“…Empirical evidence is obtained from managerial perspective in most of those researches. Dong, Robinson and Veld (2005), Grinstein and Michaely (2005), and Graham and Kumar (2006) focused on investors' preferences on dividends. They examined the effect of clienteles, retail versus institutional investors.…”