a1 Robinson College of Business, Georgia State University, PO Box 3989, Atlanta, GA 30303, and Indian Institute of Management–Bangalore. firstname.lastname@example.org
a2 Robinson College of Business, Georgia State University, PO Box 3989, Atlanta, GA 30303. email@example.com
a3 McCoy College of Business, Texas State University, San Marcos, TX 78666. firstname.lastname@example.org
We track the dividend initiation (DI) decisions from a sample of 6,588 firms that went public during the period 1979–2005 and find that 873 of them initiated dividends. Our primary objective is to determine whether information signaling can explain the DI decision. We find that variables suggested by the dividend-signaling models of John and Williams (1985) and Allen, Bernardo, and Welch (2000) are significant determinants of the DI decision and the associated announcement-period stock price effect. We also find support for the residual, agency, tax, clientele, transaction costs, catering, and life-cycle explanations of dividend policy.
We appreciate the comments from an anonymous referee, George Benston, David Blackwell, Harry DeAngelo, Vladimir Gatchev, Paul Irvine, Michael Keefe, Paul Malatesta (the editor), Steve Smith, Isabel Tkatch, Sunil Wahal, and participants at the 2009 Financial Management Association Meeting, Atlanta Finance workshop, Chonnam National University, Pusan National University, Seoul National University, and University of Otago. The usual disclaimer applies. Kale’s research was supported, in part, by the H. Talmage Dobbs, Jr. Chair and a research grant from Georgia State University.