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Unraveling the Dividend Puzzle: A Field Experiment

Author

Listed:
  • Xiaoqiao Wang

    (School of Management and Economics, Chinese University of Hong Kong, Shenzhen)

  • Jing Xie

    (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau)

  • Bohui Zhang

    (School of Management and Economics, Chinese University of Hong Kong, Shenzhen)

  • Xiaofeng Zhao

    (Faculty of Business, Lingnan University)

Abstract
We conduct a field experiment to explore why firms pay dividends. We change managers’perception of agency concerns from outside investors, investors’ risk preference, the information gap with outside investors, and firms’ tax clientele by contacting publicly listed firms in China to test four dividend theories (agency, bird-in-hand, signaling, and tax clientele theories). We find that past payers (firms that paid dividends in the previous year) receiving the treatment of agency concerns increase their dividends relative to the control group. In contrast, firms receiving the other treatments do not experience changes in their dividend policy. The treatment effect of agency concerns in past payers is more prominent for firms with weaker governance and robust to various model specifications. A post-experimental survey confirms our findings. The evidence suggests that the agency cost motive is most pertinent in explaining a firm’s dividend policy.

Suggested Citation

  • Xiaoqiao Wang & Jing Xie & Bohui Zhang & Xiaofeng Zhao, 2024. "Unraveling the Dividend Puzzle: A Field Experiment," Working Papers 202406, University of Macau, Faculty of Business Administration.
    • Handle: RePEc:boa:wpaper:202406
    as

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    File URL: https://fba.um.edu.mo/wp-content/uploads/RePEc/doc/202406.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dividend policy; Field experiment; Agency costs; Investor Relations;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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