Dividend Decisions of UK listed firms: Beyond Agency Theory. By Ciaran Driver, Anna Grosman, Pasquale Scaramozzino

Ciaran Driver (SOAS) & Anna Grosman ( Loughborough University) & Pasquale Scaramozzino (SOAS)

ABSTRACT

Standard dividend pay-out specifications are identified only under a tight set of maintained hypotheses that may not apply uniformly across jurisdictions.  We develop an approach that is relevant for the institutional setting of frequent trading and a liberal takeover market. We posit that firms in such markets are pressured to make high dividend payouts. Adopting this social norm investor pressure theory, we study the channels of influence for such pressure on dividend payments. We develop a set of hypotheses that are tested using analysts’ forecasts and institutional shareholders data. Overall, the results show that perceived investor pressure on firms to disgorge earnings, particularly under conditions of heightened takeover risk, is an important determinant of dividend payout. Traditional agency views receive only qualified support and there is only weak evidence for signaling.

Keywords: dividend policy; dividend specification; investor pressure; panel data; UK firms