There is a geographically varying dividend clientele
effect consistent with the variations in risk aversion among different cultural groups.
After four decades, the main theoretical issues regarding DP have focused upon the optimal DP for a firm, the market response to the firms' dividend decisions, the dividend signaling hypothesis, the dividend clientele
effect, taxation issues associated with dividends versus capital gains, importance of agency costs, lifecycle theory of dividend, and determinants of DP.
Some direct evidence on the dividend clientele
Prediction 21 is based on the existence of static dividend clienteles
, so I start by reviewing dividend clientele
Theory suggests several possible reasons for these positive abnormal returns, these include: reduction of free cash flow or debt capacity, signaling of management's optimism, distribution of tax preferred income, and dividend clientele
Consistent with implications of the tax-induced dividend clientele
theory, I document a strong positive association between dividend increase magnitude and post-dividend-increase trading activity.
Effect of the Tax Differential on Dividend Clientele
Schlarbaum (1978), 'Some direct evidence on the dividend clientele
After controlling for regulation, liquidity, and risk effects, test results show that each group of insurers forms a distinct tax-induced dividend clientele
Any dividend clientele
effect among institutional investors is weaker now than it was before the PI standard emerged in the early 1990s.
These results are contrary to the tax-based dividend clientele
Schlarhaum, 1978, "Some Direct Evidence on the Dividend Clientele
Phenomenon," Journal of Finance 33(5), 1385-1399.