Intra-industry conformity in dividend policy
Faculty of Applied Economics
, p. 492-516
University of Antwerp
Purpose The purpose of this paper is to study the impact of intra-industry conformity tendencies on dividend policy among a large sample of US firms. Design/methodology/approach The paper explores mimetic influences on dividend policy. Consistent with prior institutional research, the paper measures mimetic pressures as institutional prevalence or the pervasiveness of a feature of dividend policy within a firm's relevant environment. Findings The results reveal a significantly positive relationship between the lagged density of firms in the industry that pay a dividend and the probability of a focal firm paying a dividend. Moreover, for firms paying a dividend, results indicate that higher similarity in dividend payout among firms in the same industry induces more conformity between a focal firm and average industry practice. Overall, results are consistent with imitation in dividend policy. Research limitations/implications The results support the view that future research on dividend policy should value social and behavioral factors more explicitly in order to arrive at a more overall and consistent explanation of firms' dividend policy. Moreover, the results also illustrate the relevance of alternative theories in explaining dividend policy. Practical implications The results show that intra-industry benchmarking of dividend policy plays a significant role in the USA. Originality/value This study documents the relevance of social imitation mechanisms behind dividend payout behavior and therefore adds to the current knowledge of the impact of behavioral processes on dividend policy.