Journal of Financial and Quantitative Analysis

Research Articles

The Shareholder Base and Payout Policy

Andriy Bodnaruka1 and Per Östberga2

a1 Department of Finance, University of Notre Dame, 238 Mendoza College of Business, Notre Dame, IN 46556,

a2 Department of Banking and Finance, University of Zürich, Plattenstrasse 14, 8032, Zürich, Switzerland,


We examine the relation between the shareholder base and payout policy. Consistent with the idea that the shareholder base is related to the cost of external financing, we find that firms with small shareholder bases have lower payout levels and maintain higher cash holdings. We show that undertaking an open market repurchase results in a significant reduction in the size of the shareholder base. Consequently, we find that firms with small shareholder bases are less likely to undertake a repurchase (reduce the shareholder base even further) and are more likely to pay special dividends.


  Insightful comments and suggestions were received from an anonymous referee, Liam Brunt (a discussant), Shane Corwin, Magnus Dahlquist, François Degeorge, Mara Faccio (a discussant), Miguel Ferreira (a discussant), Francesco Franzoni, Gustavo Grullon (a discussant), Paul Malatesta (the editor), Kjell Nyborg, Raghu Rau, Peter Schotman, Paul Schultz, Andrei Simonov, Andrew Winton, and seminar participants at the 2009 American Finance Association meetings in San Francisco, the 2008 CEPR Symposium in Financial Markets in Gerzensee, the 2009 European Finance Association meetings in Bergen, the 2008 European Winter Finance Summit, the 2008 State of Indiana Conference, Michigan State University, the University of Lugano, the University of Maastricht, and the Norwegian School of Economics. Financial support from Bankforskningsinstitutet, the Jan Wallander och Tom Hedelius Foundation, and the National Centre of Competence in Research “Financial Valuation and Risk Management”(NCCR FINRISK) is gratefully acknowledged.