Why Do Firms Pay Dividends?: Evidence from an Early and Unregulated Capital Market

John D. Turner, Qing Ye, Wenwen Zhan

Research output: Contribution to journalArticlepeer-review

19 Citations (Scopus)

Abstract

Why do firms pay dividends? To answer this question, we use a hand-collected data set of companies traded on the London stock market between 1825 and 1870. As tax rates were effectively zero, the capital market was unregulated, and there were no institutional stockholders, we can rule out these potential determinants ex ante. We find that, even though they were legal, share repurchases were not used by firms to return cash to shareholders. Instead, our evidence provides support for the information–communication explanation for dividends, while providing little support for agency, illiquidity, catering, or behavioral explanations. © The Authors 2013. Published by Oxford University Press [on behalf of the European Finance Association]. All rights reserved.
Original languageEnglish
Pages (from-to)1787-1826
Number of pages40
JournalReview of Finance
Volume17
Issue number5
Early online date11 Jan 2013
DOIs
Publication statusPublished - Sep 2013

ASJC Scopus subject areas

  • Finance

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