Industry effects in the dividend initiation decision

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We examine the relationship between industry dividend structure and the likelihood and level of dividend initiations. We find that firms are less likely to initiate a dividend if dividend levels in the industry are high or growing, but those that do initiate seek to match industry peers in initiation levels. We also find that announcement returns to dividend initiating firms are lower when more industry peers are dividend payers and when industry dividends are increasing. Overall, the results are suggestive of an industry equilibrium dividend policy in that firms appear to incorporate industry expectations for dividend levels and growth into the initiation decision.

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