Common Ownership and Firm Dividend Policies

Abstract

This paper examines the relationship between common ownership and firm dividend policy. Using a detailed dataset from Sweden on investors’ holdings, we find that dividend policies of firms newly added to an investor’s portfolio evolve towards the dividend policies of the existing firms in this portfolio. This relationship is neither driven by investors targeting firms forecasted to change their dividend policies, nor by firms with a similar dividend strategy to the companies in the new acquirer’s existing portfolio. Instead, the effect on dividends depends on the characteristics of the new owner and of the company purchased. Our results suggest that owners have a “dividend policy style”, that they are influential in dividend decisions, and that their influence depends on the type of co-owner and the existing governance characteristics of the co-purchased firm.