How Corporate Managers View Dividend Policy

Abstract

This study investigates the views of corporate managers about the relationship between dividend policy and value; explanations of dividend relevance including the bird-in-the-hand, signaling, tax-preference, and agency explanations; and how firms determine the amount of dividends to pay. We also examine whether the responses on these topics differ among three industry groups (manufacturing, wholesale/retail trade, and utilities). We obtain data from a mid- 1 997 mail survey sent to 603 chief financial officers of U.S. firms listed on the NYSE. Based on 198 usable responses, the empirical results show that most survey respondents believe that dividend policy affects firm value. Of the four explanations for dividend relevance, the respondents generally express the highest level of agreement with statements about signaling. The results also show that managers are concerned about the continuity of dividends when setting dividend payments. Finally, the respondents from the three industry groups surveyed generally hold similar views about dividend policy issues.