Empirical Test on a Catering Theory of Dividends in the Korean Stock Market

Cho, Seong Soon; Park, Kyunghee; Byun, Jinho

doi:2017.46.2.343

Korean J Financ Stud > Volume 46(2); 2017 > Article

Korean Journal of Financial Studies 2017;46(2):343-379.
DOI: https://doi.org/10.26845/KJFS.2017.03.46.2.343 Published online March 31, 2017.

Empirical Test on a Catering Theory of Dividends in the Korean Stock Market

Seong Soon Cho, Kyunghee Park, Jinho Byun

행태재무론 관점에서 살펴본 한국의 배당 케이터링이론 검증

조성순, 박경희, 변진호

Abstract

This paper studies whether a catering theory of dividends, which suggests that managers cater to investor demand when they determine an existent dividend policy, is applied to the Korean stock market. Both results using the dividend premium and investor sentiment index show that as investor demand on dividend gets stronger, the propensity to pay, increase and the degree of dividend also get higher. Also we find that market responses on dividend and its increase are more positive when investor demand for dividend is strong. This, in turn, reflects managers` consideration of demand for dividends when making dividend policy because more positive market response can be rewards for the managers` rational decision. This study explains dividend payment from the perspective of behavioral finance. In this paper, we test the reliability of investor sentiment index in the Korean capital markets and accurate market reactions on dividend disclosure. Results of this study are expected to provide better information and understanding for managers and investors on how to improve the implementation of their dividend policy.

Key Words: 배당공시,배당정책,배당프리미엄,케이터링이론,투자자심리지수,Catering Theory,Dividend Announcement,Dividend Policy,Dividend Premium,Investor Sentiment Index