TY  - JOUR
AU  - Baker,Malcolm
AU  - Wurgler,Jeffrey
TI  - A Catering Theory of Dividends
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9542
PY  - 2003
Y2  - March 2003
UR  - http://www.nber.org/papers/w9542
L1  - http://www.nber.org/papers/w9542.pdf
N1  - Author contact info:
Malcolm Baker
Baker Library 261
Harvard Business School
Soldiers Field
Boston, MA  02163
Tel: 617/495-6566
Fax: 617/496-5271
E-Mail: mbaker@hbs.edu

Jeffrey Wurgler
Stern School of Business, Suite 9-190
New York University
44 West 4th Street
New York, NY  10012
Tel: 212/998-0367
Fax: 212/995-4233
E-Mail: jwurgler@stern.nyu.edu
AB  - We develop a theory in which the decision to pay dividends is driven by investor demand. Managers cater to investors by paying dividends when investors put a stock price premium on payers and not paying when investors prefer nonpayers. To test this prediction, we construct four time series measures of the investor demand for dividend payers. By each measure, nonpayers initiate dividends when demand for payers is high. By some measures, payers omit dividends when demand is low. Further analysis confirms that the results are better explained by the catering theory than other theories of dividends.
ER  -