Declining propensity to pay? A re-examination of the lifecycle theory

Our results indicate that the declining propensity to pay is a function of the changing composition of firms over time and not a declining propensity in individual firms themselves. In particular, the propensity to pay is greater than expected following the 2003 dividend tax cut. The decade a firm w...

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Bibliographic Details
Published inJournal of corporate finance (Amsterdam, Netherlands) Vol. 27; pp. 345 - 366
Main Authors Banyi, Monica L., Kahle, Kathleen M.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.08.2014
Elsevier Science Ltd
Subjects
Dividends
Earned equity
Going public
Initial public offerings
Lifecycle theory
Payout policy
Repurchases
Studies
Tax cuts
G35
Dividends
Payout policy
Earned equity
Repurchases
Lifecycle theory
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Summary:Our results indicate that the declining propensity to pay is a function of the changing composition of firms over time and not a declining propensity in individual firms themselves. In particular, the propensity to pay is greater than expected following the 2003 dividend tax cut. The decade a firm went public is also a major determinant of its initial payout policy. Finally, while the strength of the relation between earned/contributed capital and payout propensity declines across IPO decades, there is still a lifecycle effect — within a given IPO cohort, the likelihood of payout increases as firms age. •The decline in the propensity to pay dividends is not firm specific.•The decline is due to the changing composition of firms and their payout preferences.•Since 1982, the propensity to pay has not declined but changed in form.•The decade a firm goes public is a determinant of payout propensity and form.•A lifecycle exists within IPO cohorts, as payout propensity increases as firms age.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2014.06.001