I thank the anonymous referee for helpful comments.
Prior Payment Status and the Likelihood to Pay Dividends: International Evidence
Article first published online: 13 JUL 2010
© 2010, The Eastern Finance Association
Volume 45, Issue 3, pages 785–802, August 2010
How to Cite
Twu, M. (2010), Prior Payment Status and the Likelihood to Pay Dividends: International Evidence. Financial Review, 45: 785–802. doi: 10.1111/j.1540-6288.2010.00271.x
- Issue published online: 13 JUL 2010
- Article first published online: 13 JUL 2010
- dividend stickiness;
- likelihood to pay;
- prior payer;
- prior nonpayer;
By using the signaling model and the life-cycle theory, I examine the importance of prior payment status in determining the likelihood to pay dividends. I categorize firms into those that paid dividends previously and those that did not. My results show that strong dividend stickiness exists and the determinants to pay differ significantly for the two groups of firms. High growth and low insider holdings make prior payers more likely to pay but prior nonpayers less likely to pay. Furthermore, prior payers are more sensitive to profitability and earned/contributed equity mix, while prior nonpayers are more sensitive to risk and dividend premiums. Finally, taking the prior payment status into account eliminates the problem of overestimating the portion of payers put forth by previous studies.