Murphy, D and Thirumalai, R S
(2016)
Retail Clientele and Dividend Policy.
Working Paper.
SSRN.
(Unpublished)
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Abstract
Firms change their dividend policy following changes in their retail trading clientele. Using stock splits as an instrument, we find that a stock split leads to a 5.5 percentage point increase in the proportion of retail trading volume, which subsequently leads to a 0.10 percentage point decrease in the dividend yield and a 1.9 percentage point increase in annualized return volatility. The increase in retail trading clientele following a stock split is partially explained by the arrival of new retail investors with a preference for low-priced shares. Financial market activity has an impact on the real decisions of the firm.
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