Payout and Firm's Catering

Maria Elisabete Duante Neves
International Journal of Economics and Business Administration, Volume V, Issue 4, 104-132, 2017
DOI: 10.35808/ijeba/145


This paper is built upon the predictions of the catering theory of dividends and examines whether investor sentiments exert significant influence on corporate dividend policy.Accordingly, we propose a dividend model that incorporates a variable at the firm-level proxy for the catering effect.Estimation of the model using the GMM shows that firms in Eurozone countries cater to their investors’ sentiments, and the model provides evidence supporting the catering model.Additionally, we show an interaction effect between catering and firm characteristics, particularly liquid assets, investment opportunities, and levels of free cash flow.

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