FIN-03-023

Appearing and disappearing dividends: The link to catering incentives

July 2003

Malcolm Baker and Jeffrey Wurgler

ABSTRACT
We document a close link between fluctuations in the propensity to pay dividends and catering incentives. First, we use the methodology of Fama and French (2001) to identify a total of four distinct ends in the propensity to pay dividends between 1963 and 2000. Second, we show that each of these ends lines up with a corresponding fluctuation in catering incentives: The propensity to pay increases when a proxy for the stock market dividend premium is positive and decreases when it is negative. The lone disconnect is atibutable to Nixon-era conols.

Malcolm Baker
Institution: Harvard Business School
Email: mbaker@hbs.edu

Jeffrey Wurgler
Institution: Stern School of Business, New York University, 44th West 4th Seet, New York, NY 10012
Telephone: (212) 998-0367
Fax: (212) 995-4233
Email: jwurgler@stern.nyu.edu
Homepage: http://www.stern.nyu.edu/~jwurgler/

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