Institutional Holdings and Payout Policy




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    • Yaniv Grinstein is from the Johnson School of Management, Cornell University. Roni Michaely is from the Johnson School of Management, Cornell University and the Interdisciplinary Center, Hertzlia. We would like to thank Eli Berkovitch, Alon Brav, Stuart Gillan, Paul Gompers, Jay Hartzell, Erik Hughson, Murali Jaganathan, Michael Roberts, Kristian Rydqvist, Laura Starks, Jaime Zender, Guofu Zhou, an anonymous referee, and seminar participants at the AFA meeting 2003, Cornell University, University of Colorado at Boulder, Duke University, Tel-Aviv University, Georgetown University, and SUNY Binghamton for their helpful comments.


We examine the relation between institutional holdings and payout policy in U.S. public firms. We find that payout policy affects institutional holdings. Institutions avoid firms that do not pay dividends. However, among dividend-paying firms they prefer firms that pay fewer dividends. Our evidence indicates that institutions prefer firms that repurchase shares, and regular repurchasers over nonregular repurchasers. Higher institutional holdings or a concentration of holdings do not cause firms to increase their dividends, their repurchases, or their total payout. Our results do not support models that predict that high dividends attract institutional clientele, or models that predict that institutions cause firms to increase payout.