Dividend Policy and Institutional Holdings: Evidence from Australia

Thao Nguyen,Hui Li

doi:10.3390/ijfs8010012

Abstract

This paper investigates the relationship between dividend payout and institutional ownership for all Australian listed firms in the period between 2001 and 2015. In our univariate tests, we find that institutional investors, in general, prefer dividend-paying firms more than non-paying firms, and for the dividend-paying firms in our sample, institutional investors hold more shares in the firms who pay higher dividends. We further explore the causality between dividend payout and institutional ownership in our multivariate tests with our panel data. The results show an insignificant effect of institutional ownership (dividend payout) on the future dividend payout (institutional ownership) while controlling for firms’ fundamentals, that a higher dividend yield does not attract more institutional investors and that there is no catering to Australian institutional investors.

Highlights

Institutional investors hold a majority of share capital in Australian listed firms (RBA 2010)
We aim to investigate whether institutional ownership will have a positive effect on Australian firms’ dividend payout and whether dividend clientele effect exists, namely if a higher dividend payout will increase institutional ownership subsequently
The institutional ownership is significantly higher in the 4th quartile that in the 1st quartile, indicating that institutional investors prefer high dividend overall

Summary

Introduction

Institutional investors hold a majority of share capital in Australian listed firms (RBA 2010). We aim to investigate whether institutional ownership will have a positive effect on Australian firms’ dividend payout and whether dividend clientele effect exists, namely if a higher dividend payout will increase institutional ownership subsequently. We examine these issues using a sample of 1140 Australian listed firms for the period between 2001 and 2015. Most of the previous studies on the relationship between institutional ownership and dividend payout policy used the U.S sample firms who operate under the classical tax system. Section four carries out the main empirical tests, and section five concludes this study

Literature Review and Hypotheses

Data Description

The Empirical Tests for the Hypotheses

Findings

Discussion and Conclusions