Hostname: page-component-586b7cd67f-t7fkt Total loading time: 0 Render date: 2024-11-23T22:01:25.977Z Has data issue: false hasContentIssue false
  • English
  • Français

A Servant to Many Masters: Competing Shareholder Preferences and Limits to Catering

Published online by Cambridge University Press:  31 January 2014

Alberto Manconi  and
Massimo Massa
Alberto Manconi
Affiliation:
[email protected], Tilburg University, Finance Department andCentER, PO Box 90153, 5000LE Tilburg, The Netherlands;
Massimo Massa
Affiliation:
[email protected], INSEAD, Blvd de Constance, 77305 Fontainebleau Cedex, France.
Get access Rights & Permissions [Opens in a new window]

Abstract

We study what determines catering through the payout policy and how catering affects firm value. We create a catering index, measuring how the firm caters to its investors’ payout preferences. The index is based on the revealed payout preferences of mutual funds holding the firm’s stocks. Catering is constrained by market segmentation and dispersion in investor payout preferences. It is also associated with positive value effects: Firms increasing their catering index also experience an increase in value. Furthermore, greater catering ability is associated with a more positive market reaction to corporate announcements of equity issues and dividend payouts.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 6 , December 2013 , pp. 1693 - 1716
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Allen, F.; Bernardo, A. E.; and Welch, I.. “A Theory of Dividends Based on Tax Clienteles.” Journal of Finance, 55 (2000), 2499–2536.Google Scholar
Allen, F., and Michaely, R.. “Payout Policy.” In Handbook of the Economics of Finance, Constantinides, G. M., Harris, M., and Stulz, R., eds. Amsterdam: Elsevier, North-Holland (2003).Google Scholar
Anderson, T. W., and Hsiao, C.. “Estimation of Dynamic Models with Error Components.” Journal of the American Statistical Association, 76 (1981), 598–606.Google Scholar
Baker, M.; Coval, J.; and Stein, J. C.. “Corporate Financing Decisions When Investors Take the Path of Least Resistance.” Journal of Financial Economics, 84 (2007), 266–298.Google Scholar
Baker, M., and Wurgler, J.. “A Catering Theory of Dividends.” Journal of Finance, 59 (2004), 1125–1165.Google Scholar
Barberis, N., and Shleifer, A.. “Style Investing.” Journal of Financial Economics, 68 (2003), 161–199.CrossRefGoogle Scholar
Barberis, N.; Shleifer, A.; and Wurgler, J.. “Comovement.” Journal of Financial Economics, 75 (2005), 283–317.CrossRefGoogle Scholar
Black, F., and Scholes, M. S.. “The Effects of Dividend Yield and Dividend Policy on Common Stock Prices and Returns.” Journal of Financial Economics, 1 (1974), 1–22.CrossRefGoogle Scholar
Bolton, P., and von Thadden, E.-L.. “Blocks, Liquidity and Corporate Control.” Journal of Finance, 53 (1998), 1–25.Google Scholar
Boot, A. W. A., and Thakor, A.. “Disagreement and Flexibility: A Theory of Optimal Security Issuance and Capital Structure.” CEPR Discussion Paper 3708 (2005).Google Scholar
Bushee, B. J. “The Influence of Institutional Investors on Myopic R&D Investment Behavior.” Accounting Review, 73 (1998), 305–333.Google Scholar
Bushee, B. J. “Do Institutional Investors Prefer Near-Term Earnings over Long-Run Value?” Contemporary Accounting Research, 18 (2001), 207–246.Google Scholar
Carhart, M. M. “On Persistence in Mutual Fund Performance.” Journal of Finance, 52 (1997),57–82.Google Scholar
Cooper, M. J.; Gulen, H.; and Rau, P. R.. “Changing Name with Style: Mutual Fund Name Changes and Their Effects on Fund Flows.” Journal of Finance, 60 (2005), 2825–2858.Google Scholar
Dittmar, A., and Thakor, A.. “Why Do Firms Issue Equity?” Journal of Finance, 62 (2007), 1–54.CrossRefGoogle Scholar
Elton, E. J., and Gruber, M. J.. “Marginal Stockholder Tax Rates and the Clientele Effect.” Review of Economics and Statistics, 52 (1970), 68–74.Google Scholar
Falkenstein, E. G. “Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings.” Journal of Finance, 51 (1996), 111–135.Google Scholar
Fama, E. F., and French, K.. “Industry Costs of Equity.” Journal of Financial Economics, 43 (1997), 153–193.Google Scholar
Fama, E. F., and MacBeth, J. D.. “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy, 81 (1973), 607–636.CrossRefGoogle Scholar
Froot, K. A., and Teo, M.. “Equity Style Returns and Institutional Investor Flow.” NBER Working Paper 10355 (2004).Google Scholar
Gompers, P.; Ishii, J.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107–155.Google Scholar
Gompers, P., and Metrick, A.. “Institutional Investors and Equity Prices.” Quarterly Journal of Economics, 116 (2001), 229–259.Google Scholar
Graham, J. R., and Kumar, A.. “Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors.” Journal of Finance, 61 (2006), 1305–1336.CrossRefGoogle Scholar
Grinstein, Y., and Michaely, R.. “Institutional Holdings and Payout Policy.” Journal of Finance, 60 (2005), 1389–1426.Google Scholar
Heckman, J. J. “Sample Selection Bias as a Specification Error.” Econometrica, 47 (1979), 153–161.Google Scholar
Hotchkiss, E. S., and Lawrence, S.. “Empirical Evidence on the Existence of Dividend Clienteles.” Working Paper, Boston College (2002).Google Scholar
Hotchkiss, E. S., and Strickland, D.. “Does Shareholder Composition Matter? Evidence from the Market Reaction to Corporate Earnings Announcements.” Journal of Finance, 58 (2003), 1469–1498.Google Scholar
Kahn, C., and Winton, A.. “Ownership Structure, Speculation, and Shareholder Intervention.” Journal of Finance, 53 (1998), 99–129.CrossRefGoogle Scholar
Li, W., and Lie, E.. “Dividend Changes and Catering Incentives.” Journal of Financial Economics, 80 (2006), 293–308.CrossRefGoogle Scholar
Maug, E. “Large Shareholders as Monitors: Is There a Trade-Off Between Liquidity and Control?” Journal of Finance, 53 (1998), 65–98.CrossRefGoogle Scholar
Miller, M. H., and Modigliani, F.. “Dividend Policy, Growth and the Valuation of Shares.” Journal of Business, 34 (1961), 411–433.Google Scholar
Petersen, M. A. “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies, 22 (2009), 435–480.Google Scholar
Shleifer, A., and Vishny, R. W.. “Large Shareholders and Corporate Control.” Journal of Political Economy, 94 (1986), 461–488.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R. W.. “The Limits of Arbitrage.” Journal of Finance, 52 (1997), 35–55.Google Scholar
Sulaeman, J. “Do Shareholder Preferences Affect Corporate Policies?” Working Paper, Southern Methodist University (2007).Google Scholar
Wurgler, J., and Zhuravskaya, K.. “Does Arbitrage Flatten Demand Curves for Stocks?” Journal of Business, 75 (2002), 583–608.Google Scholar