Dividends and Dominant Corporate Shareholders

It is widely held that for tax reasons corporate shareholders are the only shareholders that prefer dividends to capital gains. This has led to clientele models where corporate blockholders migrate to firms paying dividends and use their voting power to increase dividends in these firms. We use panel data and trades of large blocks of stock to investigate these propositions. Although one-third of firms have corporate blockholders, we find no evidence that dividends are higher in these firms; that corporate blockholders are attracted to dividend-paying-firms; or that dividends increase after a corporation buys a large block of stock. ∗ Barclay is from the University of Rochester ([email protected]); Holderness is from Boston College ([email protected]); and Sheehan is from Pennsylvania State University ([email protected]).