Why Individual Investors want Dividends

M. Dong, C. Robinson, C.H. Veld

Research output: Working paperDiscussion paperOther research output

Abstract

The question of why individual investors want dividends is investigated by submitting a questionnaire to a Dutch consumer panel.The respondents indicate that they want dividends, partly because the transaction costs of cashing in dividends are lower than the transaction costs involved in selling shares.The results are inconsistent with the uncertainty resolution theory of Gordon (1961, 1962) and the agency theories of Jensen (1986) and Easterbrook (1984).In contrast, a very strong confirmation is found for the signaling theories of Bhattacharya (1979) and Miller and Rock (1985).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 on the effectiveness of the elimination of dividend taxes in order to stimulate the economy.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages45
Volume2003-28
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-28

Keywords

  • dividends
  • investment
  • surveys
  • transaction costs
  • agency theory

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