Journal of Financial and Quantitative Analysis

Research Articles

Has the Propensity to Pay Out Declined?

Gustavo Grullona1, Bradley Payea2, Shane Underwooda3 and James P. Westona4

a1 Rice University, Jones Graduate School of Business, 6100 Main St., MS 531, Houston, TX 77005. grullon@rice.edu

a2 Rice University, Jones Graduate School of Business, 6100 Main St., MS 531, Houston, TX 77005. bpaye@rice.edu

a3 University of Alabama, College of Business Administration, Box 870224, Tuscaloosa, AL 35487. seunderwood@cba.ua.edu

a4 Rice University, Jones Graduate School of Business, 6100 Main St., MS 531, Houston, TX 77005. westonj@rice.edu

Abstract

Recent studies document both a significant decline in firms’ propensity to pay dividends and a significant increase in firms’ propensity to repurchase shares and issue equity over the past 30 years. In this paper we test whether firms’ net cash disbursements to equity holders have declined in a pattern similar to firms’ propensity to pay dividends. Contrary to the evidence using dividends, we find no evidence that the conditional propensity to distribute net cash to equity holders has declined over the past 3 decades. Surprisingly, we find that, conditional on firm characteristics, net payout yields have been increasing over time.

(Online publication October 26 2010)

Footnotes

We thank Alex Butler, Yaniv Grinstein, Paul Malatesta (the editor), and doctoral students at the University of Texas at Dallas, as well as seminar participants at the University of South Florida, University of Notre Dame, Rice University, University of Virginia, the Batten Conference at the College of William and Mary, and the 2008 Western Finance Association Meetings for useful comments. We thank Boyan Jovanovic and Peter L. Rousseau for providing us with age data. Finally, we thank Murillo Campello (associate editor and referee) for numerous helpful suggestions. All remaining errors are our own.

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