Do dividends matter more in declining markets?

(with Kathleen P. Fuller)

Selected papers by Michael A. Goldstein are available on SSRN at http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=54604


Journal of Corporate Finance




We find dividends do matter to shareholders, but more in declining markets than advancing ones. Dividend-paying stocks outperform non-dividend-paying stocks by 1 to 2% more per month in declining markets than in advancing markets. These results are economically and statistically significant and robust to many risk adjustments and across industries. In addition, we find an asymmetric response to dividend changes based on market conditions: dividend increases matter more in declining markets than advancing ones. Tests indicate that results are not due to more profitable firms and appear not to be caused either by free cash flow or signaling explanations. We also find that it is the existence of dividends, and not the dividend yield, that drives returns' asymmetric behavior relative to market movements.


Corporate Finance

Recommended Citation

Fuller, Kathleen P. and Goldstein, Michael A., Do Dividends Matter More in Declining Markets? (December 21, 2010). Journal of Corporate Finance, Vol. 17, No. 3, June 2011, pp. 457-473, June 2011.

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