Seminar (Dept. of Accounting)

Title：Unraveling the Dividend Puzzle: A Field Experiment

Speaker：Xiaoqiao Wang, Assistant Professor, SME, CUHK(Shenzhen)

Time：10:00- 11:30, May 7th, 2024 (Tuesday)

Venue：Room 1007, Mingde Business Building

Language：Chinese & English

ABSTRACT:

We conduct a field experiment to explore why firms pay dividends. We inform publicly listed firms of concerns or queries that can be resolved by paying or increasing dividends according to the predictions of four dividend theories (agency, bird-in-hand, signaling, and tax clientele theories) and examine whether firms receiving the treatments change their dividend policy. Using the agency theory treatment, we find that the treatment group of past payers (firms that paid dividends in the previous year) increase their dividends relative to the control group. In contrast, firms receiving the treatments designed based on bird-in-hand, signaling, and tax clientele theories do not experience changes in their dividend policy. The treatment effect of agency theory in past payers is more prominent for firms with weaker governance and robust to various model specifications. Our work provides causal evidence that the agency cost motive is the main determinant of a firm’s dividend policy.