Abstract
Using aggregate data on institutional and individual holdings for the 1989-1996 period, it is shown that relatively lower (higher) taxed institutional (individual) investors prefer low (high) dividend yield stocks to high (low) dividend yield stocks. Also, individuals prefer dividend paying firms, whereas institutions typically prefer non-paying firms. Institutions show a weak preference for firms that engage in larger share repurchases, whereas individuals do not prefer share repurchases. These results are contrary to the widely held beliefs a) regarding tax-based and non-tax-based dividend clienteles, b) that firms pay dividends to encourage monitoring by institutional investors, and c) that the personal tax rate on equity is low (or zero).
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