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RFS Advance Access published online on June 21, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn060
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© The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Dividends and Corporate Shareholders

Michael J. Barclay
University of Rochester

Clifford G. Holderness
Boston College

Dennis P. Sheehan
Pennsylvania State University

Address correspondence to Clifford G. Holderness, Finance Department, Fulton Hall, Boston College, Chestnut Hill, MA 02467, e-mail: clifford.holderness.1{at}bc.edu.

JEL Classification: G30, G32, G35


  Abstract

Corporations uniquely have a tax preference for cash dividends. Nevertheless, dividends do not increase following trades of large-percentage blocks of stock from individuals to corporations. Moreover, although one-third of firms have corporate blockholders, 68% of these firms pay no dividends, and ownership is not clustered at levels that increase the tax benefits of dividends. These findings are not driven by the investing firms’ tax rates or by agency problems. Instead, operating companies expand the target firms and pursue joint ventures. Dividends are lower with these investors. Financial investors are not attracted to dividend-paying firms and tend to be passive.

We thank an anonymous referee, Vladimir Atanasov, Alex Edmans, Laura Field, John Graham, Yaniv Grinstein, Simona Mola, Jeffrey Pontiff, Clifford Smith, Michael Weisbach, and seminar participants at Boston College and the Annual Meeting of the American Finance Association for helpful comments. After this paper went to press, Michael Barclay died in a small plane crash. We lost a close friend of twenty-five-years standing, and the finance profession lost a leading light. (January 10, 1957–August 16, 2007) Mike truly leaves the world a better place than he found it. Many will miss him.


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