Disappearing Dividends, Catering Incentives and Agency Costs: International Evidence

Abstract

We examine time-series evidence of dividend polices in several developed financial markets over the period 1989-2002. Consistent with trends in the U.S., our evidence indicates a declining propensity to pay dividends in Canada, the U.K., Germany, France, and Japan. This decline cannot be explained by the changing composition of publicly traded firms in each country. In addition, we test implications of the catering explanation for the declining propensity to pay dividends, but fail to find robust support for the hypothesis. We argue that both our evidence and prior evidence supporting the catering hypothesis is consistent with an agency cost explanation for dividends.