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The purpose of this paper is to empirically analyse the propensity to pay dividends and investigate whether the catering theory is valid in an emerging market.

The sample of this study comprises listed firms on the stock market of Turkey, Borsa Istanbul, with 2,438 observations during the period 1999–2015. In line with previous studies in the literature, appropriate control variables are used that may have an impact on Turkish firms' dividend policy. Control variables are examined in the likelihood of paying dividends by using Fama–Macbeth (1973) style cross-sectional logistic regressions. In addition, the linkage between the dividend premium and the propensity to pay is revealed to test the validity of the catering theory.

The findings of the study confirm the tenets of the catering theory for Turkey. When a positive dividend premium exists, that is when investors demand dividend, firms cater them and distribute dividend; on the contrary, when there is no demand, firms prefer not to pay. The effect of catering incentives on the dividend policy provides useful information for managers because the catering theory claims that investors' demand for dividends has an impact on the valuation of firms.

In the aftermath of the 2001 financial crisis, Turkey implemented far-reaching reforms and policy initiatives to improve the efficiency of capital markets and to overcome the obstacles sourcing from their culture and civil law origin. With the adoption of these major economic and structural reforms, as a civil law origin country, Turkey has managed to ameliorate the protection of investors as in common law countries. Ferris et al. (2009) state that the catering theory is applicable to firms in common law countries but not in civil law countries. In addition, prior research is not so extensive regarding the impact of catering incentives on the dividend policy of firms in emerging markets. The results of the analyses suggest that the catering theory is valid for Turkey as a civil law origin emerging country, and to the best of authors' knowledge, this study is the first to test the catering theory in the Turkish capital markets.

The purpose of this paper is to examine whether the catering incentives of dividends can influence firms' dividend payment decisions in Thailand.

The sample includes all listed stocks in the Stock Exchange of Thailand during the years 1992‐2009, excluding the firms from financial industries and firms with incomplete information. The catering incentives are measured by dividend premium. The firms' dividend payment decisions are measured by propensity to pay dividends and decision to change dividends.

The findings yield qualitatively consistent with the previous research. After controlling for the effect of the Asian Crisis during 1997‐1999, the result shows that the firm's decision to pay dividend could be affected by the catering incentives. Furthermore, dividend premium will reduce the probability that firms will decide to cut dividend payment from previous years.

The result is limited to the availability of historical data. The Stock Exchange in Thailand has been established for only 35 years. With the lack of availability and completeness of data, the historical data could be gathered for only 18 years.

Investors in Thailand show their preference for dividend incomes. This could be the catering incentive of the firm to decide to pay dividends.

This paper offers the evidence of catering incentives of dividend proposed by Baker and Wurgler in the emerging market. Even though the result is not strong, it can be the evidence supporting the catering theory of dividend, not only in well‐developed markets, but also in emerging markets such as Thailand.

The purpose of this paper is to investigate whether investor sentiments exert significant influence on corporate dividend policy. Additionally it provides further evidence on the moderating role of certain firm’s characteristics on the relation between dividends and investor sentiment.

A sample of 635 firms from 12 Eurozone countries for the period of 1986-2003 has been used. A dividend model has been suggested which incorporates a variable at the firm level that proxies for the catering effect, as a measure of investor sentiments. The estimation model of dividends is based on the Generalized Method of Moments (Arellano and Bond, 1991).

It can be concluded that psychological factors influence the decision to pay. Furthermore, other relevant findings show an interaction effect between catering and firm’s characteristics, particularly high liquid assets, valuable investment opportunities, and higher levels of free cash flow.

Given the subjectivity inherent in creating a variable that captures the sentiment of investors, the author admits that there are other variables to consider. Also, corporate governance factors could have been introduced as well as other countries with different institutional environments.

To the best of the author’s knowledge, this is a novel approach that incorporates a variable capturing investor’s sentiment at the firm level. With the approach suggested it has been shown that investors’ sentiments impact dividends payout, highlighting its usefulness for managers who are expected to pay dividends according to investors’ expectations. Moreover, this work also demonstrated that firm’s characteristics could affect the investor sentiments for dividends also conveying a valuable contribution for investors.

The purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.

The authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.

The results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.

It provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.

This chapter presents both main arguments of dividend policy theories and their empirical evidence. According to Miller and Modigliani (1961), dividend decisions are not relevant to firm value in a perfect capital market. Nevertheless, there are several market frictions in the real world (e.g., information asymmetry, agency problems, transaction costs, firm maturity, catering incentives and taxes). Therefore, academics use them to develop theories which help them explain corporate dividend decisions. Particularly, signaling theory considers dividend payments as a signal about firms' future prospects since outside investors face information disadvantage. “Bird-in-hand” theory argues that investors prefer dividends to capital gains since the former have lower risk than the latter. Agency theory is developed from the conflict of interest between corporate managers and shareholders. Corporate managers have high incentives to restrict dividend payments. Furthermore, transaction cost theory and pecking order theory posit that firms prefer internal to external funds. This drives firms to hold more cash and pay less dividends. Life cycle theory explains dividend policy by firm maturity. Mature firms have fewer investment opportunities, and thus, they tend to pay more dividends. Catering theory states that dividend decisions are based on investors' demand. Firms pay more dividends since investors prefer dividends and assign higher value to dividend payers. Tax clientele theory argues that firms that have corporate dividend policy rely on the comparative income tax rates for dividends and capital gains. Under the tax discriminations against dividends, firms tend to restrict their dividends in order to increase their stock prices.

The purpose of this paper is to examine the dividend policy for firms listed on the Taiwan Stock Exchange. The results are consistent with the prediction of the catering theory in that managers choose a dividend policy to cater to the demand of investors.

Logistic regressions are used to test the catering theory hypothesis.

The results find that the firms distribute more stock dividends than other types of dividends when the dividend premium (DP) for stock dividends is positive. In contrast, firms shift from stock dividends to other types of dividends such as mixed dividends and cash dividends when the DP for stock dividends is negative.

The marginal contribution of this paper is that the firms change their dividend policy via DP to cater to the demand of investors.

This paper empirically examines the catering theory of Baker and Wurgler (2004) in the particular context of France. Considering the characteristics of French market – known for its high concentration of capital – it attempts to highlight the role family control plays in the managerial tendencies to satisfy non-informative dividend demands.

The paper focuses on a large data set of French firms included in the SBF-250 index over a period of 1992-2010. It uses a variety of dividend policy measures, including dividend premium, percentage of dividend-paying firms and probability of paying dividends. It adopts appropriate empirical specifications (time-series and probit models) to substantiate the research hypotheses.

The empirical findings show that the percentage of payers rises with the dividend premium, and that the dividend premium and the confidence index of French households are negatively correlated. This reflects the sensitivity of dividend demand to investor sentiment. Moreover, results of multivariate panel regression show a positive and statistically significant effect of the dividend premium on the firm’s tendency to pay, after controlling for firm characteristics. Finally, it finds that the dividend premium effect disappears in the case of family-controlled firms. This result is in line with the long-term orientation of family firms.

The study focuses on the dividend payment behavior of French firms. Although dividends are deeply engrained in France, authors believe that it will be interesting to look at the whole payout policy and particularly the role played by share repurchases.

Addressing short-term catering and managerial opportunism, the results of this study may be of interest for shareholders, potential investors and regulators.

To the best of the authors’ knowledge, this is the first study that provides empirical evidence on Baker and Wurgler (2004) catering theory by considering the particularity of French market where, unlike the US, percentage of dividend-paying firms is high and the corporate ownership structures are different.

The purpose of this paper is to develop and validate new robust measures of investors’ preference for the form of regular corporate payout. Then, the paper adds to the empirical evidence on catering theory by examining managers’ catering to such preference.

The authors use the matching method to control for firm characteristics. The authors apply two robustness tests to validate the measures. The authors use the rigorous multivariate analysis.

US investors’ preference for regular dividends vs regular stock repurchases, being different forms of corporate payout, varies over time. Managers cater to investors’ preference for payout form. The findings are consistent with the catering theory of Baker and Wurgler (2004a). The number of firms that pay cash dividends regularly continue to outnumber the ones that purchase their shares regularly.

The study only uses US data. It does not cover other countries.

The measures can be used in several future research endeavors, such as examining investors’ payout-form preferences in other countries (see Booth and Zhou, 2017) and exploring their determinants, the corporate governance characteristics of firms that cater to investors’ preference vs firms that do not, etc.

The study contributes to understanding investors’ preferences and corporate payout behavior which is prerequisite to efficient policy formulation.

The proxies for investors’ payout-form preference control for firm characteristics and are unrelated to investors’ time-varying risk preferences. Also, they are robust to measurement issues. Moreover, the study covers a period of 40 years.

Cross-listed firms may face unique incentives for establishing dividend policies in comparison to US firms. This study aims to test the implications of the lifecycle and signaling theories of dividend policy in the context of non-US firms cross-listed on US stock exchanges via American depository receipts (ADRs).

ADRs are classified according to the firms' dividend paying histories as regular payers, non-payers, former payers, new payers and switchers. Multinomial logit regressions measure the likelihood of dividend payers to pay dividends, as well as the possibility of a dividend amount increase, decrease, or no change, based upon previously identified determinants of dividend payments and a measure of economic conditions in the home country.

The results indicate that firm size, growth opportunities, and the mix of earned and contributed capital partially explain observed dividend policies for ADR firms. Multinomial logit regressions reveal profitability and home-country macro-economic conditions significantly affect ADR firms' decisions to change their dividend policies.

The findings suggest macro-economic conditions affect dividend payment changes among ADR firms. The results also imply that the lifecycle and catering theories may help explain dividend changes among ADR firms.

The purpose of this paper is to identify the dividend policy determinants of Sri Lankan firms and why they pay dividends.

The study uses several quantitative approaches to investigate dividend determinants using market (secondary) data of 190 Sri Lankan firms and 1,330 firm-year observations. Dividend determinants are also identified using survey (primary) data from 141 of the 190 firms. Triangulation is then used to facilitate validation of the data through cross-verification from two data sources.

Analysis of the market data reveals that firm size, industry impact, corporate governance, free cash flow, earnings, past dividends, profitability, investment opportunities, net working capital, concentrated ownership structure and investor preference represent the most important dividend determinants. Survey data confirm these findings. The evidence supports the pecking order, signaling, free cash flow, catering and outcome theories using both secondary and primary data and the bird-in-the-hand theory using survey data.

The findings are useful not only for corporate decision makers in establishing an appropriate dividend policy but also for shareholders in making investment decisions. Because the current study is limited to Sri Lanka, future researchers should study the same phenomenon in other countries using the triangulation approach.

This study provides a hybrid approach to dividend policy research by using both primary and secondary data in a single study. It is the first dividend study in Sri Lanka to use a triangulation approach.