Do Dividends Matter more in Declining Markets?
Kathleen Fuller
Terry College of Business, University of Georgia, Athens, GA 30602
Michael Goldstein*
Finance Department, Babson College, Babson Park, MA 02457
October 26, 2004
Abstract
Using S&P 500 monthly returns as a proxy for market conditions, we find that dividend-paying
stocks outperform non-dividend-paying stocks by more in declining markets than in advancing markets,
implying that investors asymmetrically prefer dividends in down markets. These results are robust to risk
adjustments using the CAPM, size and book-to-market quartiles, volume, the Fama-French three-factor
model, and Fama-McBeth style regressions. Our results also suggest that is the existence of dividends,
and not the level of the dividend, drives returns’ asymmetric behavior relative to market movements. We
conclude that a signaling theory explanation is more consistent with our results than a prospect theory
explanation.
JEL Classification Code: G35
Keywords: Dividend policy, asymmetry, market movements
*Corresponding author: Michael Goldstein, Finance Department, 223 Tomasso Hall, Babson College, Babson Park,
MA 02457-0310 tel: (781) 239-4402. fax: (781) 239-5004 email: Goldstein@babson.edu. We thank Deepak
Agarwal, Jeff Bacidore, Jennifer Bethel, Wayne Ferson, Paul Irvine, Jon Karpoff, Gautam Kaul, Laurie Krigman,
Marc Lipson, James Mahoney, Donna Paul, Tyler Shumway, John Scruggs, and Chris Stivers. Kathleen Fuller
acknowledges financial support from the Terry-Sanford Research Grant. Michael Goldstein acknowledges support
from the Babson College Board of Research.
Do Dividends Matter more in Declining Markets?
Previous theoretical and empirical research indicates investors’ preferences for dividends vary
across shareholder types. For example, depending on their tax bracket, some shareholders may prefer
high dividend-paying stocks while others may prefer non-dividend-paying stocks. Anecdotal evidence
also suggests that investors’ preferences for dividends may vary over time. For example, in 2000,
Fidelity began airing advertisements for a mutual fund consisting of only dividend-paying stocks in which
an advisor informs his client this fund would help diversity his portfolio and moderate losses in down
markets. Also in 2000, Standard & Poor’s predicted a revived interest in dividends, stating “market
weakness may boost interest in dividends as investors begin to see the value of a ‘bird in the hand.’”
These statements imply that investors’ preferences for dividend-paying stocks over non-dividend-paying
stocks vary over time conditional on the state of the market, i.e., advancing and declining markets.
There are two reasons why investors might condition their preference for dividend-paying stocks
on the state of the market: prospect theory and signaling theory. 1 Prospect theory, developed by
Kahneman and Tversky (1979), indicates that people respond differently to certain verses probabilistic
gains and losses and care more about losses than they do to gains. Prospect theory suggests therefore that
investors may prefer the cash from dividend-paying stocks more when they predict future uncertainty or
economic downturns, and less when the market is doing well.2 Dividend-paying stocks provide a return
where at least part of the return is a certain gain over those non-dividend-paying firms for which the entire
gain or loss is uncertain. In markets that are moving upward, investors, while still valuing the relatively
more certain gain, may value it less so since the preference for loss avoidance is mitigated. During
periods of market decline, however, investors prefer dividends as a cushion to their returns, particularly if
1
A third reason why investors would prefer cash dividends, the theory of self-control, was developed by Thaler and
Shefrin (1981). As discussed in Shefrin and Statman (1984) , investors may want to consume dividend payments so
to keep from consuming their long-run wealth (i.e., consuming capital). However, the theory of self-control cannot
explain differential investor preferences based on market movements.
2
Markowitz (1952, 1959) noted that investors may care about downside risk differentially. Other theories, such as
first-order risk aversion utility functions in Gul (1991), provide a similar result.
1
they are downside risk-averse. Such responses are similar to the “flight to quality” tendency that is seen
during market declines documented by Connolly, Stivers, and Sun (2004). To the extent that investors
value dividends as a certain return, investors may move from risky to less risky investments, in this case
from non-dividend-paying to dividend-paying firms.
Another possibility relates to the signaling nature of dividends. Previous research suggests
dividend-paying firms are better able to signal managers’ expectations than non-dividend-paying firms.3
Again, this ability to signal may be more valuable in declining markets than in advancing markets. In
declining markets, dividend-paying firms can signal positive information by just maintaining dividend
payments; in such markets the prior commitment to pay dividends is more likely to be binding, increasing
the value and importance of the signal. In advancing markets, it is expected that firms will generally
perform well and the probability of, and costs associated with, financial distress are lower. The prior
commitment to pay is therefore less likely to be binding in advancing markets and thus the value of
dividend signals is likely to be lower. It is possible, therefore, that a policy of paying dividends during
advancing markets conveys less information than a policy of paying dividends during declining markets.
Overall, because non-dividend-paying firms do not credibly provide this signal, investors may discover
that their state preferences for dividend payments cause them to value dividend-paying firms higher than
non-dividend-paying firms during market downturns.
Both prospect theory and signaling theory suggest that the extent of investors’ preferences for
dividend-paying stocks over non-dividend-paying stocks should be stronger in declining markets than in
advancing markets. In this paper, we examine if investors have a preferences for dividend-paying firms
in declining markets and determine whether prospect or signaling theory is the more likely explanation
for this preference. Using S&P 500 returns as a proxy for market conditions, we examine the return
Dividends either signal managers’ private information regarding future earnings [e.g., Bhattacharya (1979), John
and Williams (1985), and Miller and Rock (1985)] or signal that managers will not waste excess cash [e.g.,
Easterbrook (1984), Jensen (1986), and Lang and Litzenberger (1989)]. As noted in Allen and Michaely (2004),
empirical tests of these two hypotheses fail to pick an overwhelming winner. Brav, Graham, Harvey, and Michaely
(2004) find that managers believe dividends do signal information but are not sure exactly what is being signaled.
We do not attempt to distinguish between these two theories of dividend signaling.
3
2
behavior of dividend-paying and non-dividend-paying firms in both up and down markets from January
1970 to December 2000. We find that dividend-paying firms outperform non-dividend-paying firms by
more in down markets than they do in up markets, implying that dividends do provide a differential
benefit depending on market conditions. Our finding that the magnitude of the outperformance of
dividend-paying stocks over non-dividend-paying stocks depends on market conditions is robust to a
variety of adjustments for risk, including the CAPM, size and book-to-market quartiles, the Fama-French
three-factor model, and Fama-McBeth style time-varying regressions, as well as various controls for size,
time period, and alternative definitions of up and down markets.
Our results are also robust to a number of other controls. For example, these results are robust to
exchange listing (NYSE vs. NASDAQ), indicating different market structures as well as the inherent
differences across NYSE-listed and NASDAQ-listed stocks do not drive our results. To verify that these
results are not primarily due to small stocks, we truncate the sample by examining only the middle 50%
of the stocks based on market capitalization and still find that dividend-paying stocks outperform nondividend-paying stocks by more in down markets than in up markets. To verify that down markets do not
just proxy for expectations of increased future overall market risk, we segment our data based on
estimates of implicit volatility from S&P stock options and find that dividend paying stocks continue to
outperform non-dividend-paying stocks by more in down than up markets. We also find that these results
hold across different sub-periods.
Finally, our finding that dividends matter more in declining markets is not driven by the cash
payment itself. Kalay and Michaely (2000) note that time series variation may be related to actual
dividend payments itself. They note that Black and Scholes (1974) and Litzenberger and Ramaswamy
(1979, 1980, and 1982) have different results primarily due to differences in how they classify a dividendpaying stock: while Black and Scholes ascribe a stock as dividend paying even during months during
which a dividend is not being paid, Litzenberger and Ramaswamy do not. Instead, for quarterlydividend-paying stocks, Litzenberger and Ramaswamy classify the stock as a non-dividend paying for
3
eight months that a dividend is not paid and as a dividend-paying stock for the other four ex-dividend
months. To verify that our results are not driven by the cash payment, we examine the eight months of
the year when dividend are not paid by dividend-paying stocks. We find dividend-paying stocks
outperform non-dividend-paying stocks by more in down markets than in up markets even during the
months when the dividend-paying firms did not pay a dividend, indicating that it is not the receipt of the
cash itself that is driving these results.
While these broad results are consistent with both a prospect theory explanation and a signaling
theory explanation, a number of tests indicate that the signaling theory explanation is more likely. First,
we find that the different market reaction in up and down markets is due to the dividend-paying or nondividend-paying nature of the stock and does not vary with dividend yield, implying the ability to pay a
dividend – and not how much – is the cause of the differential performance across market conditions.
Thus, the dividend yield itself is not driving the results; just the payment of a dividend results in dividendpaying firms outperforming non-dividend paying firms in down markets. The insignificance of the yield
level is more consistent with a signaling theory explanation. Signaling theory focuses more on the ability
to signal and not the previously established level while prospect theory would suggest that a larger
amount of cash should matter more. Second, while our results hold for all stocks, the results are more
pronounced for smaller stocks, even after all risk adjustments. While prospect theory would not suggest a
preference across larger and smaller stocks, signaling theory would indicate that the signal is more
valuable the lower the overall information environment for that stock. Fuller (2003) finds that firms with
less information available to the market have greater price reactions to dividend changes and the signal
provided. Since smaller stocks tend to have fewer analysts and less overall information, the extra
signaling ability of small dividend-paying stocks over small non-dividend-paying stocks should be even
more pronounced in declining markets. The signaling explanation is consistent with our finding of a
more pronounced differential between dividend-paying and non-dividend-paying small stocks than large
stocks.
4
Third, we find the results are also more pronounced for stocks with more trading volume, after
controlling for risk. Amihud (2002), Butler, Grullon, and Weston (2004), and Lipson and Mortal (2004)
have related liquidity to stock returns, the cost of raising capital, and capital structure. Chordia, Roll, and
Subrahmanyam (2001) and Van Ness, Van Ness, and Warr (2004) also find that liquidity varies with the
overall market movements; both find a pronounced change in down markets. We examine potential
liquidity effects with respect to asymmetric performance for dividend paying stocks and find that
dividend-paying stocks continue to outperform non-dividend-paying stocks more in down markets than in
up markets even after controlling for volume. Again, prospect theory would not suggest any preference
for high or low volume stocks, while signaling theory predicts that for firms with more dispersion in
investors’ beliefs, the greater the value of the signal. For example, Frankel and Froot (1990) find that
dispersion Granger-causes volume, and Harris and Raviv (1993) and Shalen (1993) find greater
dispersion in investors’ opinions of the firm’s value leads to higher volume.4 Thus, our results are
consistent with the signaling theory prediction that the asymmetric response across dividend-paying and
non-dividend-paying stocks should be positively correlated with volume. Collectively, these results
provide more support for a signaling theory explanation than one involving prospect theory.
The remainder of the paper is organized as follows. Section I expands on how dividend payments
relate to market movements and some unique characteristics of dividend payments, as well as providing
testable empirical predictions. Section II presents the data and methodology. Section III describes the
major empirical results, both overall as well as risk-adjusted using CAPM, Fama-French three-factor
model tests, and Fama-McBeth style regressions. Section IV provides some robustness checks by
examining alternate definitions for up and down markets, alternate model specifications, and controls for
volatility and market listing. Section V examines other issues related to liquidity issues and dividend
changes. Section VI examines whether signaling theory or prospect theory is the more likely explanation
As Frankel and Froot (1990, p. 182) note “The tremendous volume of … trading is another piece of evidence that
reinforces the idea of heterogenenous expectations, sinceit takes differences among market participants to explain
why they trade.”
4
5
for the results found in this paper. Section VII concludes.
I.
Market Movements, Dividends, and Empirical Predictions
a.
Market movements
Although there are several reasons why investors might prefer dividend-paying stocks in down
markets, traditional asset pricing models such as the Sharpe (1964) – Lintner (1965) CAPM or the FamaFrench (1992, 1993) models do not account for state-specific investor preferences. Previous research
suggests, however, that investors may have asymmetric preferences; for example, Harvey and Siddique
(2000) find that risk-averse investors dislike negative skewness. In addition, an increasing body of work
examines asymmetric responses of returns to market movements, and finds different return characteristics
in up or down markets. Ang and Chen (2002) find that correlations between stocks’ returns and the
market increase when the market declines. DeBondt and Thaler (1987) find different upside and
downside betas for previous winners, although Ang, Chen, and Xing (2004) find that it is downside
correlations, and not downside betas, that investors price. Additionally, Ang, Chen, and Xing (2004) find
higher expected returns for firms whose correlations with the market increase when the market is
declining. Using a Bayesian framework, Hong, Tu, and Zhou (2003) finds that there are significant
differences across bull and bear markets, arguing that they should be examined separately. Other studies,
such as Goldstein and Nelling (1999), find that the returns on REITs have different risk characteristics,
with different correlation structures and betas, depending on whether the market has a positive or negative
return.
Broadly rising or falling markets tend to indicate – albeit imperfectly – investors’ perceptions of
the state of the economy in the future. In particular, broadly falling markets indicate either an increase in
interest rates or a reduced expectation of future cash flows across most firms. During such times, both
prospect theory and signaling theory indicate that investors may prefer cash payments to capital gains.
For example, prospect theory directly implies that investors would prefer the certainty of a dividend
6
payment relative to the more variable capital gain, especially when markets are moving down. While
investors in non-dividend-paying firms could mimic this cash flow by selling stock, they would be doing so
at depressed prices (given the market downturn) and incur potentially non-trivial transaction costs (a
guaranteed loss). It is possible, therefore, that in these states of the world investors would prefer dividends,
while in more positive states of the world the receipt of dividends would be less valuable. Further, as a
great deal of stock is now held in tax-deferred accounts, it is no longer clear that dividends are taxdisadvantaged to selling stock.5
Similarly, signaling theory suggests investors have more demand for signals during declining
markets. Bhattacharya (1979), John and Williams (1985), and Miller and Rock (1985) argue that
dividends may signal managers’ private information regarding future earnings. When future projections
of the economy are poor or uncertain, investors are likely to look to managers for information regarding
their firm’s financial health and future prospects. Since the probability and costs of financial distress
generally rise in down economies, this information is particularly valuable. Note that in this case it is the
existence of a dividend payment that provides such a signal. In fact, it need not be that each individual
dividend payment has great signaling value; instead, the maintenance of the commitment to pay regular
dividends allows the firm to send a signal that the future prospects for the firm remain positive. A similar
signaling argument can be made for the free cash flow hypothesis as developed by Jensen and Meckling
(1976) and Jensen (1986), which suggests that managers can credibly signal they will not invest in
negative NPV projects through the “bonding” of maintaining dividend payments. This signal of
avoidance of future negative NPV projects should be most valuable when the market is down, since the
probability that the bonding will be a binding constraint increases as the state of the economy decreases.
Thus, whether the signal is the maintenance or increase in future earnings or the reduction of waste of free
cash flows, the ability to signal should be most valuable in periods of poor overall stock market
performance.
5
See Clements (2002) for a larger discussion on this point. Recent changes in tax laws have also reduced or
7
b.
Dividends
We concentrate on dividend payments because dividends have a variety of special features that
lend themselves nicely to studying investors’ preferences in declining markets. While Grullon and
Michaely (2002) argue for examining the total payout of a firm, dividends have a variety of unique
features not shared by repurchases. First, dividend payments are cash payments to all shareholders, while
the benefit of share repurchases is a possible capital gain to those retaining their shares. Brennan and
Thakor (1990) hypothesize that repurchases only benefit informed investors but dividend payments benefit
all investors equally. Second, repurchases are not continuing obligations of the firm and may be
suspended at any time, while the payment of a dividend generally signifies a continuing obligation to
continue to pay a dividend (for that dollar amount or higher) in the future. Cook, Krigman, and Leach
(2004) note that the timing of share repurchases is uncertain, including if and when they are completed,
thus limiting their signaling ability. Howe, He and Kao (1992) also indicate that repurchases are
discretionary and are not always observable by investors. However, the timing and completion of
dividend payments is transparent: dividends are announced and then paid on a certain date. It is
immediately clear to shareholders whether or not this obligation has been met in part or in full.
Finally, unlike repurchase programs, dividend payments are regularly scheduled. For example,
for quarterly dividend payers, investors know in advance when to expect the next dividend payment. Yet,
investors in non-dividend-paying firms do not know when they will next receive credible information
about their investment. In particular, the value of dividend-paying stocks should be highest in those states
of the world where the signal is of the most value, i.e., down markets when there is either increased
uncertainty or when expectations of the future have become less rosy. As a result, investors may prefer
dividend-paying stocks to non-dividend-paying stocks even in the months when the dividend-paying
eliminated the tax benefits of capital gains over dividend payments.
8
stock does not pay a dividend, as investors reasonably expect to get a signal within a few months for
dividend-paying stocks.6
Focusing only on dividends is unlikely to bias our findings. Examining a similar time period,
Boudoukh, Michaely, Richardson, and Roberts (2004) indicate that the correlation between dividend yield
and payout yield is approximately 0.80 and was, for most of the time period, higher than repurchase
yields measured similarly. To the extent that repurchases are beneficial in down markets, not considering
repurchases will only bias us against finding significant results. (For example, if repurchases are
beneficial, they would mitigate our results on non-dividend-paying stocks, since, by definition, nondividend-paying stocks can only increase payout through share repurchases.) If repurchases are highly
correlated with dividend payments, our results would still hold.
Other papers also support this focus on dividends. Although Fama and French (2001) claim that
firms tend to view dividends as less necessary now than in the past, DeAngelo, DeAngelo, and Skinner
(2004) find that this trend has occurred due to very small dividend payers omitting dividends; increases
by large dividend payers have more than offset these omissions in value. Allen, Bernardo, and Welch
(1998) find that firms have continued to pay more of their earnings in dividends than in repurchases, and
Brennan and Thakor (1990) note that uninformed investors would prefer dividends to share repurchases
due to adverse selection effects. There is also a large body of research that examines dividend and nondividend-paying stocks separately, but that does not consider the state of the market. Papers such as
Blume (1980), Litzenberger and Ramaswamy (1980, 1982), and Elton, Gruber, and Rentzler (1983)
examine dividend yields in a modified version of Brennan (1970)’s after-tax CAPM that explicitly
accounts for non-dividend-paying firms. These papers find that although there is a relation between
expected returns and dividend yields for those firms that pay dividends, this relation does not hold for
6
For example, if a stock pays dividends in March, June, September, and December, the non-dividend-paying
months are January, February, April, May, July, August, October, and November. While Easterbrook (1984) noted
that “designing an empirical test [of constant-payout policies] is formidable,” Section V provides an empirical test of
dividend-paying firms in non-dividend-paying months to examine the benefit of such constant dividend-payout
policies.
9
non-dividend-paying firms. Christie (1990) examines non-dividend-paying firms explicitly and finds that
non-dividend-paying firms underperform firms of similar size. None of these papers, however, examine
differing effects across different market conditions.7
c.
Empirical implications
We examine dividend and non-dividend paying stocks separately to examine their differing
responses to advancing and declining markets by testing a variety of hypotheses. We begin by examining
the three empirical predictions which should hold under either the prospect theory explanation or the
signaling explanation to investigate whether investors differentially prefer dividend-paying stocks in
declining markets. First, we test whether dividend-paying stocks outperform non-dividend-paying stocks
more in declining markets than in advancing markets. Under either prospect or signaling theory, this
result should hold overall, after controlling for risk, for most sub-periods, and across most stocks (large
vs. small, NYSE vs. NASDAQ, etc.). Alternatively, according to traditional asset pricing models, we
should find no differences. Second, the maintenance of a dividend should cause a favorable response
during a declining market but not during an advancing market, and the increase of a dividend should
matter more in declining markets than advancing markets. Prospect theory would indicate that investors
prefer cash in down markets more than in up markets, while signaling theory proposes that the
maintenance of a dividend in a down market is a positive signal and the increase of a dividend in a
declining market is a very strong signal. Alternatively, no difference should be seen under symmetric
asset pricing models. Third, investors should prefer dividend-paying stocks to non-dividend-paying
stocks even during those months between dividend payments during which no dividend is paid. Both
prospect theory and the preference for signaling ability indicate that it is not the receipt of a cash
payment, but the knowledge that such payments are coming, that matter. Alternative explanations (such
7
Baker and Wurgler (2004) find some evidence that when investors value dividends, managers will initiate dividend
payments and when investors value non-dividend-paying stocks, manager omit dividend payments.
10
as tax explanations) require cash payments and therefore the results would not hold in non-dividendpaying months for dividend-paying stocks if these explanations were correct.
Next, we determine if the signaling explanation is more likely than prospect theory to drive these
results. First, while dividend-paying stocks outperform non-dividend-paying stocks in declining markets,
this result should not vary with the amount paid. Prospect theory would imply that investors would prefer
more cash to less in down markets, while signaling theory would suggest that just the existence of a
dividend – and not its level – is preferred by investors. Therefore, our results should vary significantly
with dividend yield if prospect theory is the driving explanation, and should not vary significantly with
dividend yield if signaling theory is more correct. Second, although true for all stocks, small dividendpaying stocks should outperform small non-dividend-paying stocks in declining markets more than large
dividend-paying stocks outperform large non-dividend-paying stocks in declining markets. Prospect
theory does not differentiate across stock types; however, signaling theory implies the value of the ability
to signal is more valuable for firms for which there is less information. As a result, smaller stocks should
show more pronounced effects under the signaling theory explanation. Finally, the relative difference
between up and down markets between dividend-paying and non-dividend-paying stocks may be highest
for more liquid, high volume stocks. Although prospect theory does not indicate that there should be any
difference across liquidity grouping for the preference of dividend-paying stocks over non-dividendpaying stocks, signaling theory suggests that since more liquid stocks may have more investor dispersion,
and therefore, a significant difference between dividend-paying and non-dividend-paying stocks.
II.
Data and Methodology
We identify a sample of dividend-paying and non-dividend-paying firms from the Center for
Research in Security Prices (CRSP) monthly master file by examining all NYSE, AMEX, and NASDAQ
listed stocks with data in CRSP over the 31-year period from January 1970 to December 2000. For each
firm, we collect its monthly return, market capitalization and share volume data from CRSP. Since
11
studies of returns and dividend yields such as Blume (1980), Litzenberger and Ramaswamy (1980, 1982),
Elton, Gruber, and Rentzler (1983), and Christie (1990) note a U-shaped pattern in returns due to the
unusual nature of non-dividend-paying stocks, we identify dividends by comparing the CRSP total return
to the CRSP return that does not include dividends. If the returns are different, the firm is considered to
have paid a dividend in that month, and the difference is considered to be the dividend. Although this
method might result in the calculation of negative dividends, these likely errors were retained so as to not
impart any bias by correcting errors on only one side.
Next, we used the distribution code in CRSP to determine if the dividend was a special, annual,
semi-annual, quarterly, or monthly. As we are concerned with the signaling aspect of dividends, we only
examine quarterly-dividend-paying stocks. Choosing quarterly-dividend-paying stocks increases the
frequency of the possibility of signal observations while decreasing the length of time between potential
signals. Thus, only quarterly-dividends were considered when determining whether a firm was a
dividend-paying firm. All firms paying dividends other than quarterly dividends were considered nondividend-paying firms. In this way, to the extent that non-quarterly dividends are at all considered
positive, we will bias our results against finding any results for quarterly-dividend-paying firms.8
For each month we classify firms as either dividend paying or non-dividend-paying. If a firm
paid a quarterly-dividend in that month, it is classified as a dividend-paying firm. Further, the months
between quarterly-dividend payments are also classified as dividend-paying months. If a firm does not
pay a dividend and then begins paying a dividend, it is classified as a non-dividend-paying firm until the
month after the dividend is paid. That is, if a firm lists on January 1989 but does not pay a quarterlydividend until June 1992, then the firm is considered a non-dividend-firm from January 1989 through
June 1992 and is classified as a dividend-paying firm as of July 1992 until the firm stops paying a
dividend, the firm is delisted, or the sample period ends. In this way, any positive return in the stock
8
To insure that these rules did not affect our results, we re-ran our tests using alternate definitions of dividendpaying stocks. For example, we also included all regularly scheduled dividend payments (monthly, quarterly, and
yearly) when classifying firms as dividend-paying. As another alternative classification method, we dropped all
12
price due to the initiation of a dividend will be attributed to the non-dividend-paying stock group, thereby
biasing our results against finding outperformance by dividend-paying stocks. If a firm pays a dividend
and then stops paying a dividend, it is classified as a dividend-paying firm until the month after the
scheduled quarterly-dividend payment. That is, a firm lists on January 1989 and begins paying a
quarterly-dividend as of March 1989 but does not pay the June 1992 dividend, then the firm is considered
a non-dividend-paying firm for January, February, and March 1989, a dividend-paying firm from April
1989 to June 1992 (the month of the expected quarterly-dividend), and a non-dividend-paying firm from
July 1992 until it is either delisted, pays a dividend, or the sample period ends.9 Thus, any negative
surprise due to the cessation of a dividend will be attributed to the dividend-paying group, further biasing
our results against finding outperformance by dividend-paying stocks.10
Because we want to examine if investors value firms that pay dividends, we must look at those
periods where dividend payments should be most valuable. We use down markets as a proxy for those
times when investors should more highly value dividend payment. Similar to Goldstein and Nelling
(1999), we collect the S&P 500 returns for each month from CRSP and classify an up market as a month
during which the monthly return on the S&P 500 was positive, while a down market is one where the
S&P 500 posted a negative monthly return. Other papers examining asymmetric market responses have
defined up/down markets differently: Ang and Chen (2002) define up and down markets by looking at
returns in excess of the one-month Treasury bill, while Ang, Chen, and Xing (2004) define up and down
markets by whether the excess market return is below its mean in the previous year. Given that the
market historically has a positive excess return, these alternate definitions would result in more months
non-quarterly-dividend payments from the sample so non-dividend-paying firms never paid any type of cash
dividend. Results are qualitatively similar and available upon request.
9
As a robustness check, we also ran the results requiring that for a firm to be called a dividend-paying firm, the firm
must pay dividends for the entire time period. All of the results were substantively unchanged.
10
As one area of concern is the response of dividend-paying stocks, we chose a classification method that, if
anything, will bias downwards the returns of dividend-paying stocks. In particular, this classification method does
not bias upward the results for the dividend-paying stocks due to initiations and omissions.
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being classified as down markets than will our more restrictive definition. As we are primarily interested
in different responses in down markets, we use the more conservative definition.11
Overall, our sample includes 20,315 NYSE, Amex and NASDAQ listed firms for the 372
calendar months from January 1970 to December 2000. Each firm was classified as either dividendpaying or non-dividend-paying for every month of the sample period in which data was available,
resulting in a total of 2,161,688 firm months in our time period, of which 1,392,422 are non-dividendpaying firm months and 769,266 are dividend-paying firm months. Table 1 describes the dividend- and
non-dividend-paying firm months in our sample. Panel A provides averages across all observations for
all 372 calendar months in our sample, while Panels B and C provide averages for those observations that
occur in the 217 months in our sample where the S&P 500 had a positive return (“up markets”) and the
155 months where it did not (“down markets”). As Panel A indicates, the average market capitalization
of firms during the months when they were classified as dividend paying is almost five times that of firms
classified as non-dividend-paying. This larger size is due to having twice as many shares outstanding and
an average price about 2.5 that of the non-dividend-paying firms. Trading volume was relatively similar
for dividend-paying firms and non-dividend-paying firms. Betas for non-dividend-paying firms were
slightly larger than those classified as dividend-paying firms. These general results in Panel A are similar
for both up and down markets as indicated by Panels B and C, indicating that the relative relationships
between dividend-paying and non-dividend-paying do not vary significantly with overall market
movements.
Insert Table 1 here
11
As a robustness check, we also ran tests defining down markets as negative excess returns. The results on excess
returns (not reported here) are substantively similar. In the robustness section, we classified up and down markets
based on bull and bear market definitions provided by Ned Davis Research Inc.
14
III.
Main Results: Overall and Risk-Adjusted
To investigate how investor preferences for dividends vary across market conditions, we examine
returns of dividend-paying and non-dividend-paying stocks overall and in up and down markets
separately. In addition to showing results for all markets, Table 2 presents evidence for the 217 months in
our sample where the S&P 500 had a positive return (“up markets”) and the 155 months where it did not
(“down markets”). Panel A indicates that we find that dividend-paying firms significantly outperformed
non-dividend-paying firms by 0.37% per month across all the months in our sample, with this difference
statistically significant at the 1% level for the Student t-test, the Wilcoxon sign-rank test, and the KruskalWallis test. In addition, dividend-paying firms significantly outperformed non-dividend-paying firms in
both up and down markets separately at the 1% level.
The magnitude of the difference, however, depended on the state of the market. Although
dividend-paying firms returned only 0.16% more than non-dividend-paying firms during up markets, they
provided 0.90% more than non-dividend-paying firms during down markets. We therefore test to see if
dividend-paying stocks statistically outperform non-dividend-paying stocks more in declining markets
than in advancing markets as signaling or prospect theory would indicate. Using a difference-ofdifferences test, we find that dividend-paying stocks outperformed non-dividend-paying stocks by 0.74%
more in down markets than in up markets, and that this difference is significant at the 1% level, finding
support for these theories.12
To verify that this overall result is not driven by one particular subperiod, Panel B examines three
separate decade sub-periods: January 1970 to December 1979, January 1980 to December 1989, and
January 1990 to December 2000. While the relative outperformance of dividend-paying over nondividend-paying stocks does not hold for two of the three up markets, it does hold for all three of the
12
The difference of differences used throughout the paper is the difference of non-dividend-paying stocks minus
dividend-paying stocks in up markets minus the difference of non-dividend-paying stocks minus dividend-paying
stocks in down markets. A positive number for this test indicates that dividend-paying stocks outperformed nondividend-paying stocks by more in down markets than in up markets. Throughout the paper, only parametric
methods were used to test the significance of the difference of difference test due to the nature of the data (unequal
number of observations across all four potential categories).
15
down markets. More importantly, the differences-of-differences tests for all three sub-periods indicate
that dividend-paying stocks outperform non-dividend-paying stocks by more in down markets than in up
markets, and that this relative outperformance is significant at the 1% level. Thus, the difference-ofdifference results are consistent both overall and in each of the three sub-periods. Collectively, the results
in Table 2 support the first major empirical prediction that investors differentially prefer dividend-paying
stocks over non-dividend-paying stocks more in declining markets than in rising markets.
Insert Table 2 here
A.
CAPM Results
Although the state of the market affects the magnitude of the difference, so too does the level of
risk of the stock. We examine the abnormal return for each firm i using the capital asset pricing model to
determine expected returns; we estimate:
Abnormal Return i  ActualReturn i   rF  i  rM  rF  
(1)
where Actual Returni is the return for firm i for that month, rF is the three-month Treasury bill for that
month, rM is the return on the CRSP equally-weighted portfolio, and βi is the beta for stock i give by
CRSP. We then compare the abnormal returns for dividend-paying and non-dividend-paying firms for all
markets, up markets and down markets, as shown in Table 3. Although non-dividend-paying firms
outperform dividend-paying firms in up markets by 0.19%, in down markets dividend-paying firms
perform significantly better (i.e., significantly less negative returns) than non-dividend-paying firms by
0.60%, more than four times as much. As a result, the difference of differences of 0.79% is highly
significant, indicating that the relative abnormal returns for dividend-paying stocks over non-dividendpaying stocks are larger in down markets than in up markets. The CAPM risk adjusted results in Table 3
are consistent with the univariate results found earlier in Table 2: in each case we find that dividend-
16
paying stocks outperform non-dividend paying stocks by more in down markets than in up markets.
Thus, the answer to our central question – do investors prefer dividend-paying firms to non-dividendpaying firms in down markets – is yes, even after controlling for risk using beta and the CAPM.
Insert Table 3 here
B.
Size and Market-to-Book Results
Fama and French (1992) and others have suggested that book-to-market and size are also
important determinants of returns. Christie (1990) also suggests that size is an important factor when
examining the returns of dividend-paying and non-dividend-paying stocks. To test if the results are
robust to segmentation by book-to-market and size, we replicate the original Fama and French (1992)
methodology by dividing our samples of dividend-paying and non-dividend-paying stocks into four
market capitalization quartiles and then further sub-dividing those quartiles into four book-to-market
quartiles, for a total of 16 sub-groups for each of the dividend-paying and non-dividend-paying stocks.13
The end result is thirty-two portfolios: sixteen portfolios of dividend-paying stocks based on book-tomarket and size quartiles, and sixteen portfolios for non-dividend-paying stocks. We then calculate the
average excess return (return of a firm in month t over the three-month Treasury bill rate in month t) for
each portfolio.
Insert Table 4 here
Table 4 examines the excess return characteristics for the portfolios formed on size and book-tomarket. Overall, size seems not to matter as much as book-to-market in determining the difference
between the dividend-paying and non-dividend-paying groups for all markets. As shown in Panel A, non-
17
dividend-paying stocks seem to outperform dividend-paying stocks for the lower book-to-market groups
across all markets, with the reverse true for the higher book-to-market quartiles. However, as Panel B
shows, in up markets the non-dividend-paying stocks outperform the dividend-paying stocks for low
book-to-market quartiles, but for the higher book-to-market groups, size becomes a factor and only the
smaller stocks in the higher book-to-market quartiles have a significant difference. Panel C, however,
presents results that during down markets, dividend-paying stocks do better than non-dividend-paying
stocks for all book-to-market categories, but only for the smaller stocks. Thus, the results are strongest
for low book-to-market small stocks.14
Panel D examines the differences of differences and finds reasonably strong support for dividendpaying stocks outperforming non-dividend-paying stocks by more in down markets than in up markets, as
predicted by both the signaling and prospect theory hypotheses. However, the results are the weakest for
the largest stocks, particularly those with medium to high book-to-market values, and strongest for small
stocks and lower book-to-market values. These results therefore provide slightly more support for the
signaling hypothesis over prospect theory. Smaller, low book-to-market (i.e., high market-to-book)
stocks are likely to have less information provided than larger, high book-to-market firms. As a result,
the value of the receipt of a signal may be stronger for these firms, particularly when the general economy
(as proxied by the stock market) looks less favorable. Therefore, these results are consistent with a
signaling explanation. Prospect theory, on the other hand, would not differentiate across these firms; we
would expect to see no systematic difference across these categories. Thus, the results in Table 4 support
the overall suggestion that investors prefer dividend-paying stocks to non-dividend-paying stocks in down
13
We thank Ken French for providing the cutoff points for the market capitalization and book-to-market quartiles.
To determine if the results in Table 4 were driven by differences in size and book-to-market values for dividendpaying versus non-dividend-paying stocks within each individual size and book-to-market subgrouping, we
examined the median size and book-to-market values for each group in the sixteen groupings. We found that only
for the smallest firms were there significant differences between the median size of dividend-paying and nondividend-paying firms (dividend paying firms were significantly larger than non-dividend-paying firms). There
were no significant differences in median book-to-market ratios for dividend-paying and non-dividend-paying firms
across the sixteen groups.
14
18
markets more than in up markets, and also provide some support for the signaling explanation as to why
they have this preference.
C.
Fama-French Three-Factor Model Results
Similar to Ang, Chen, and Xing (2004), we also use the Fama and French (1993) (FF) threefactor model to estimate abnormal returns for monthly portfolios. This model controls for nonindependence of returns over time, size, and book-to-market effects. We estimate a modified FF threefactor model as follows:
rit  rFt   iT  biT RMRFt  siT SMBt  hiT HMLt  diT DOWN t   it
(2)
where rit is the monthly return on a portfolio i of dividend-paying or non-dividend-paying firms, rFt is the
monthly return on three-month Treasury bills, RMRF is the excess return on a value-weighted aggregate
market proxy, SMB is the difference in the returns of a value weighted portfolio of small stocks and large
stocks, HML is the difference in the returns of a value-weighted portfolio of high book-to-market stocks
and low book-to-market stocks as in Fama and French (1993), and DOWN is a dummy variable which
takes on the value one if the market is down and zero if the market is up. For each month we calculate the
excess return on an equally-weighted portfolio composed of either all dividend-paying firms or all nondividend-paying firms. We then regress this portfolio return on the factors in equation (2) and examine
the differences in coefficients. We would expect that if investors prefer dividend-paying firms in down
markets, that for the dividend-paying portfolio the coefficient on DOWN should be significantly higher
than that of the non-dividend-paying portfolio.
1.
Econometric issues and weighting methodology
To perform these analyses and those that follow, we use equally-weighted portfolios. There are a
number of factors in favor of equally weighting of portfolios. First, we are examining the responses of
19
dividend and non-dividend portfolios to up and down markets, where up is defined as a positive S&P 500
return. The S&P 500 index is itself a value-weighted portfolio. Thus, the value-weighted dividend and
non-dividend portfolios will be very highly correlated with the variable that conditions on the up and
down market, namely S&P 500 index.15 Many of the same stocks will determine the return characteristics
of both the portfolios and the index that divides our sample. This effect will be particularly exacerbated
for the value-weighted dividend portfolio, given the structure of the S&P 500 index, which will further
complicate comparisons across the dividend and non-dividend portfolios.16
A second issue related to the use of equally-weighted portfolios is related to whether an investor
can trade on this information. While an equally-weighted portfolio may incur more transaction costs due
to the increased trading from more frequent portfolio rebalancing, the issue in this paper is the differential
asymmetric response of dividend and non-dividend-paying stocks in up and down markets. Given that
the state of the market is fixed during any one month, investors cannot trade on this information; it is a
state of the world for all stocks. Furthermore, even if it were possible to trade on the state of the market,
it would be prohibitively expensive for investors to move from an all dividend-paying portfolio to an all
non-dividend-paying portfolio based on the state of the market. Therefore, given the focus of the
question and the nature of the test, trading considerations are not a primary concern.
Third, the results in Table 4 for the sixteen size and book-to-market portfolios indicate that the
results vary with size, so making size-weighted portfolios would somewhat obfuscate the results. Ang
and Chen (2002) also note that these asymmetric results decrease with size; therefore, value-weighted
portfolios would tend to understate the magnitude of the results. In addition, Fama and French (1993,
1996) find that three-factor models have systematic problems explaining returns for small stocks, making
this methodology not as useful.
15
We also changed the definition of up/down markets to be based on whether the CRSP equally-weighted index had
positive returns or not. The results provided even more support that dividend-paying stock outperform nondividend-paying stocks even when portfolio returns were value-weighted.
16
For example, since the value-weighted dividend-paying portfolio returns are highly correlated with the S&P 500
return, we would expect that dividend-paying portfolios to always do worse than non-dividend-paying firms in down
markets.
20
Finally, as Fama (1998) notes, the weighting structure of the portfolio should determined by the
underlying question. Because the question under investigation in this study is more a question about the
particular nature of an individual stock – does it or does it not pay a dividend – and not particularly about
a portfolio, Fama (1998) implies that equally weighting is appropriate. Equally-weighted portfolios allow
for an examination of individual characteristics of a stock by treating each stock similarly, while value
weighted portfolios can be primarily driven by a limited number of stocks. Results from equallyweighted portfolios therefore better represent the “average” stock. A number of recent papers, such as
Lowry (2003), have therefore presented equally-weighted results. In addition, dividend policy is a
management choice variable. As managers do not control a portfolio of firms, but instead a single firm,
managers are more concerned with the results for an average stock. As a result, we use equally-weighted
portfolios in these analyses.
2.
Fama-French overall results
We first verify that the FF three-factor model using our sample provides consistent results with
prior research. As indicated in Panel A of Table 5, the coefficients on the FF three-factors indicate that
the data load properly on the factors, do not have significant alphas, and have very high adjusted R2 of
around 90% for both the non-dividend-paying and dividend-paying portfolios, indicating that the basic FF
model works well with this data. In addition, although the factor loadings are significantly different from
each other, contrary to the hypotheses in Brennan (1970) or the empirical results in Black and Scholes
(1974), Litzenberger and Ramaswamy (1979, 1980, 1982), and Blume (1980), we do not find differences
between dividend-paying and non-dividend-paying stocks overall in terms of alpha outperformance.
Insert Table 5 here
3.
Modified Fama-French results
21
Panel B of Table 5 presents the results for the modified FF model with the additional dummy
variable DOWN. In general, we find that the return-generating process is different for dividend-paying
stocks than for stocks that do not pay a dividend. In particular, we find that the state of the market affects
the return of the portfolios when the market is going down. More specifically, we find that the coefficient
on the DOWN market dummy variable (-1.34%) is negative and significant for non-dividend-paying
firms, indicating that non-dividend-paying firms have a different return-generating function in down
markets. However, while the coefficient on the DOWN market dummy variable (-0.29%) is also negative
for the dividend-paying firms, it is not significantly different from zero.
More importantly, the coefficient on the DOWN dummy variable is significantly more negative
for non-dividend-paying firms than it is for dividend-paying firms. This result indicates that the main
result that investors prefer dividend-paying firms over non-dividend-paying firms more in down markets
than in up markets holds even after controlling for risk using the Fama-French factors.
D.
Fama-McBeth Style Regressions
We also examine Fama-McBeth style regressions to determine if dividend-paying stocks
outperform non-dividend-paying stocks in down markets. The regressions were run cross-sectionally
each month for every firm as in Fama and McBeth (1973). We estimate the following:
rit  rFt  iT   iTt  iT Ln(Mktcap) t  iT Ln(BVEquity) t  iT DIVt  it
(3)
where rit – rFt is the return on a stock in month t minus the three-month Treasury bill return for month t, 
is the firm’s beta measured for the prior year for month t, Ln(Mktcap) is the natural log of the firm’s
market capitalization for month t, Ln(BVEquity) is the natural log of the firm’s book value of equity for
month t, and DIV is an indicator variable that equals one if the firm pays a dividend in month t and zero if
the firms does not pay a dividend in month t. Table 6 reports that the coefficient for DIV is significantly
greater in down months (0.3759) than in up months (0.3608) at the 1% level, indicating that in down
22
months dividend-paying firms outperform non-dividend-paying firms. This shows that investors value
dividend-paying firms more in down markets and more so than in up markets.
Insert Table 6 here
E.
Dividend Changes
The results thus far support the first main empirical prediction suggested by both signaling and
prospect theory, i.e., that investors do have a preference for dividend-paying stocks in down markets. The
second main empirical prediction implied by both signaling and prospect theory relates to whether
changes in dividend payments matter based on market conditions. From an asset pricing or dividend
capture/tax clientele perspective, we would expect that market responses to changes in dividends would
not be a function of the state of the market. In other words, the market should respond similarly to
increases in dividends in either an up or down market. Not changing a dividend would likely have little
effect from an asset pricing perspective regardless of the overall state of the market.
From either a signaling or prospect theory perspective, however, we would expect an asymmetric
response. Prospect theory indicates that investors prefer cash in down markets more than in up markets.
The same is true under the signaling theory explanation. In down markets, investors’ perceptions of
future profits tend to be lower, while investors tend to have positive outlooks on future earnings during up
markets. Increasing dividends in down markets therefore provides a much stronger signal about the
future than a similar increase during an up market. Similarly, not changing a dividend during up markets
likely provides little additional information to investors. However, during a down market, when investors
may be more pessimistic about the overall economic outlook, not changing a dividend provides investors
with a reassuring signal that the company is not headed for bankruptcy. Finally, decreasing dividends in
down markets may be expected by investors and thus convey less information than when firms decrease
dividends in up markets when everything is supposedly going well.
23
Thus, we would expect that in down markets dividend increases should have higher price
reactions than in up markets, and dividend decreases would have lower (less negative) price reactions in
down markets than up markets. Further, if the maintenance of dividends provides information, then we
would also expect in down markets that for firms that had no changes, the abnormal return would be
higher than for firms with no dividend change in up markets.
We test this second empirical prediction that investors respond differently to the maintenance or
changes in the dividend based on market conditions by examining the market's reaction to dividend
changes and no changes during up and down markets. Specifically, to determine if investors’ value
changes in dividends differentially, we examine changes in quarterly-dividends gathered from CRSP from
1970 to 2000. The only restrictions we place on the sample it that there must be five days of returns
surrounding the announcement listed on CRSP, the dividend is paid on ordinary common shares of U.S.incorporated companies, and the change is not be a dividend initiation or omission.17 Our sample
included 3,294 firms with 18,537 increases, 4,595 decreases, and 93,537 no changes. We follow Brown
and Warner’s (1985) standard event study methodology to calculate CARs for the five-day period (-2, 2)
around the announcement date supplied by CRSP.
We estimate the abnormal returns using a modified market model:
ARi  ri  rm
(3)
where ri is the return on firm i and rm is the equally-weighted market index return. We do not estimate
market parameters based on a time period before each change because some firms have frequent dividend
changes and thus, there is a high probability that previous changes would be included in the estimation
period thus making beta estimations less meaningful. Additionally, Brown and Warner (1980) show for
short-window event studies that weighting the market return by the firm's beta does not significantly
improve estimation.
17
Asquith and Mullins (1983), Healy and Palepu (1988), and Michaely, Thaler and Womack (1995) show that there
are more pronounced market reactions to dividend initiation and omission announcements than there are to dividend
changes. Therefore, to be conservative, we exclude initiations and omissions to ensure that our results are not the
result of initiations or omissions but are solely due to changes.
24
As shown in Table 7, price reactions to dividend increases are less in up markets (0.857%) than in
down markets (1.206%), and this 0.349% difference is significant at the 5% level for the Student t-test
and at the 1% level for the two non-parametric tests. In addition, dividend decreases have less negative
returns if announced during down markets (-0.324%) than up markets (-0.375%); although not different at
normal significance levels parametrically, this 0.051% difference is statistically different for the two nonparametric tests at the 1% level. Further, firms that maintained their current dividend payments in down
markets experienced positive abnormal returns (0.170%) while firms that maintained their current
dividend levels in up markets had abnormal returns (0.046%) that are insignificantly different that zero.
The 0.124% difference in abnormal returns between firms that maintained their dividend in up and down
markets is significant at the 1% level for the parametric and non-parametric tests, indicating a much
stronger and positive response for firms that just maintain their dividend in down markets over the nonresponse for maintaining a dividend in down markets. Thus, the differences-in-means between up and
down markets were statistically significant for three groupings (increases, decreases, and no changes).
Collectively, the results in Table 7 support the second main empirical prediction that investors
respond differently to changes – or even the maintenance – of a dividend in advancing and declining
markets. These results also reconfirm the earlier results that there are asymmetric responses in up and
down markets and thus provide further support to either the signaling or prospect theory explanations.
Insert Table 7 here
F.
Dividend-paying stocks during non-dividend-paying months
Kalay and Michaely (2000) note that time series variation may be related to actual dividend
payments itself. Therefore, one possibility is that dividend-paying firms outperform non-dividend-paying
firms simply because of the return in the month the firm paid the dividend, and in the remaining months
when no dividend is paid returns for dividend and non-dividend-paying firms are similar. In other words,
it could be that our findings that dividends matter more in declining markets may be driven by the cash
25
payment itself. If this is true, then there may be no information or signal in the fact that a firm continues
to pay a dividend but only a signal in the dividend payment itself when it is received.18 Alternatively, it
could be that the knowledge that a signal will be received (via the dividend payment) is in itself valued as
well. Similarly, under prospect theory, the knowledge that cash is to be received should still be valued
more in down markets than in up markets, and not just the receipt of cash itself.
Thus, the third main empirical prediction indicates that investors should still prefer dividendpaying stocks over non-dividend-paying stocks not just during those months in which the dividend is
paid, but also in those months between dividend payments. In some sense, the key question here is what
is the definition of a dividend-paying stock? Is it that that the stock paid dividends this month, or that this
firm has paid dividends in the past and is expected to continue paying on a regular basis? Different
authors have defined this differently. For example, Kalay and Michaely (2000) note that Black and
Scholes (1974) and Litzenberger and Ramaswamy (1979, 1980, and 1982) have different results primarily
due to differences in how they classify a dividend-paying stock: while Black and Scholes ascribe a stock
as dividend-paying even during months during which a dividend is not being paid, Litzenberger and
Ramaswamy do not. Instead, for quarterly-dividend-paying stocks, Litzenberger and Ramaswamy
classify the stock as a non-dividend paying for eight months that a dividend is not paid and as a dividendpaying stock for the other four ex-dividend months.
Throughout this paper, we have defined dividend-paying stocks on a month-by-month basis in a
manner similar to that in Black and Scholes (1974), i.e., a quarterly-dividend paying stock is considered a
dividend-paying stock for all twelve months of the year, and not just the four months of the year during
which a dividend is being paid, as in Litzenberger and Ramaswamy (1979, 1980, and 1982). To verify
that our results are not driven by the cash payment, we examine the eight months of the year when
dividend are not paid by dividend-paying stocks. Specifically, we eliminate the returns for dividend
paying firms in the month the dividend is paid and compare the returns of non-dividend-paying firms to
18
Similarly, any asset pricing strategy that involves dividend capture or tax clienteles should not have different
results in non-dividend-paying months.
26
the returns of dividend-paying firms in months with no dividend payments. In this way, we are explicitly
examining those firm-months that Black and Scholes would define as dividend-paying that Litzenberger
and Ramaswamy would define as non-dividend-paying, and removing those firm-months for dividendpaying stocks for which they agree (i.e., the months in which the dividend is paid).
As indicated in Panel A of Table 8, we find that for up markets, dividend-paying and nondividend-paying firms have the same average monthly return (3.72%), but in down markets, dividendpaying firms (-3.03%) still significantly outperform non-dividend-paying firms (-2.36%), even when the
dividend return is excluded from the dividend paying firms’ returns. The 0.67% difference of differences
is significant at the 1% level. Further, we also estimate the modified FF model and find in Panel B that
again, the down market dummy variable is insignificantly different from zero for dividend-paying firms (0.2%8) during months when they are not paying a dividend, and, more importantly, is significantly higher
than that for non-dividend-paying firms (-1.34%) at the 1% level.
Insert Table 8 here
Thus, the results in both panels of Table 8 support for the third main empirical prediction that
dividend-paying stocks outperform non-dividend-paying stocks by more in down markets than in up
markets even during the months when the dividend-paying firms did not pay a dividend, indicating that it
is not the receipt of the cash itself that is driving these results.
G.
Summary of Results and Empirical Predictions
Overall, the results in Tables 2 through 8 indicate that dividend-paying stocks outperform nondividend-paying stocks by more in declining markets than they do in advancing markets. The results in
tables 2 through 6 individually and collectively support the first main empirical prediction, namely that
investors differentially prefer dividend-paying stocks in declining markets as predicted by either the
signaling theory explanation or the prospect theory explanation. In addition, the results in Table 7 support
27
the second main empirical prediction that changes or maintenance of a dividend matter more in down
markets than up markets. The results in Table 8 show that these findings are not merely due to the cash
payment itself, supporting the third main empirical prediction. Collectively, these results indicate that
either the signaling explanation or the preference theory explanation can provide additional understanding
to investors’ behavior over and above those found in traditional symmetric asset pricing models that do
not allow for such asymmetric responses.
IV.
Robustness Checks: Small stocks, Bull/Bear markets, Volatility, and Exchange Listing
Overall, the results provide convincing evidence that dividend-paying stocks outperform non-
dividend-paying stocks, particularly in down markets. To verify further that these results hold under a
variety of specifications, we examine potential small stock bias, alternative definitions of up and down
markets, perform a further examination of risk-adjusted sub-period results, and search for possible
liquidity effects.
A.
Small Stocks
The results in Table 5 were determined by using the three-factor Fama-French model to adjust for
risk for all of the stocks in our sample. One possible issue is the small stock bias due to poor performance
of the Fama-French model with respect to small stocks. It is unlikely, however, that this small stock bias
is determining the results. First, Panel A of Table 5 demonstrates that the model performs as expected
using our sub-samples of dividend-paying and non-dividend-paying stocks. Second, the results in Table 5
are consistent with the results in Tables 2, 3, 4, and 6.
Even so, one can mitigate the small stock issue when using the Fama-French model by removing
some of the smaller stocks from the analysis and verifying the results. To investigate whether the small
stock bias is an issue, we removed the lower 25% of firms based on market capitalization. That is, each
month we removed the smallest 25% of our firms. We then estimated the modified Fama-French model
removing the bottom quartile of stocks based on market capitalization. Panel A of Table 9 indicates that
28
the overall result noted in Table 5 that dividend-paying firms outperform non-dividend-paying firms by
more in down markets than in up markets continues to hold for this subset of firms. For this subsample,
the coefficient on DOWN for the non-dividend-paying firms is -0.81%, while for dividend-paying firms
the coefficient is -0.29%; this difference in coefficients is significant at the 5% level.
Further for evenness, we also re-ran the results removing the top quartile as well, so as not to
impart any bias due to the truncation methodology. We therefore truncated the distribution of firms at
both the upper and lower 25%, so that the tests were run on the middle 50% of the firms. As indicated in
Panel B, the coefficient on DOWN is -1.10% for non-dividend-paying stocks, while the coefficient on
DOWN for dividend-paying stocks is much higher at -0.22%; this difference in coefficients is significant
at the 1% level.
For both panels, the adjusted R2 are higher than 90%, indicating that the model works well. Thus,
the results in both panels indicate that dividend-paying firms outperform non-dividend-paying firms in
down markets, indicating that it is not a small firm bias that is driving our results. Given these results, we
continue to use the Fama-French methodology for adjusting for risk in other robustness checks and
further tests.
Insert Table 9 here
B.
Bull and Bear Markets
To examine if the definition of up and down markets affects the results, we run two tests. The
first, not shown here, redefines an up month as a month with a positive excess return, i.e., a month where
the S&P 500 return exceeded the risk-free rate for that month, and a down month as a month with a
negative excess return, similar to the definitions used in Ang and Chen (2002). While this is a less
stringent definition of a down month, it seems reasonable that investors would require a positive market
premium. All of the results in the paper continue to hold under this alternate definition.
29
Another way to define advancing and declining markets is to use the concept of bull and bear
markets. The definitions of bull and bear markets are a bit circumspect, in that the beginning and ends of
these periods are only known ex post. The bull and bear markets used in this analysis are as defined by
Ned Davis Research. Overall, there were eight separate bull markets and eight bear markets in our
sample, resulting in 259 months being classified as a bull month, and 113 months classified as a bear
month. Panel A of Table 10 replicates the univariate tests in Panel A of Table 2 and while Panel B of
Table 8 replicates the modified Fama-French test found in Panel B of Table 5, using the Ned Davis
Research definitions of a bull or bear market to define months in place of the previous definitions used for
up and down markets. In each case, the results for bull and bear markets support the results reported
previously that dividend-paying stocks outperform non-dividend-paying stocks by more in down markets
than in up markets. Collectively, the results of these two tests indicate that it is not the definition of up
and down markets that is driving these results.
Insert Table 10 here
C. Expected Future Volatility
An alternative explanation of our results is that it is not the down market to which investors are
reacting but instead increased uncertainty in the market. Thus, we test whether the overall volatility
perceived in the market could be driving our results. We estimate market sentiment using the Chicago
Board Options Exchange Volatility Index (VIX). For our sample period, this data is available only
starting in 1986. This index represents the implied volatility of an at-the-money option on the S& 100
Index with 22 trading days to expiration. For each month we calculate the change in the VIX measure.
This change is then compared to the average change for the previous year. If the monthly change is
greater than the past year’s average change, then that month the market is considered to be estimating that
future volatility will be high and if the monthly change is less than or equal to the past year’s average
change, the market is considered to estimate that the future will have low volatility. We then estimated
our modified Fama-French model adding an indicator variable that for each month equals one if the
30
market is expecting high future volatility and zero if the market is expecting low future volatility. That is,
we estimate:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  d iT DOWN t  viT VOL t  it
where rit – rFt is the return on a equally-weighted portfolio of either dividend or non-dividend-paying
stocks in month t minus the three-month Treasury bill return in month t, RMRF is the excess return on a
value-weighted aggregate market proxy for month t, SMB is the difference in the returns of a valueweighted portfolio of small stocks and large stocks for month t, HML is the difference in the returns of a
value-weighed portfolio of high book-to-market stocks and low book-to-market stocks for month t,
DOWN is an indicator variable that equals one if the market is down and zero if the market is up, and
VOL is an indicator variable that equals one if the market expects high volatility and zero if the market
has low volatility.
Panel A of Table 11 finds that for the entire period from 1986 to 2000, the volatility is not a
significant factor in determining returns for both dividend-paying and non-dividend-paying stocks. The
coefficient on the VOL variable is -0.0024 for non-dividend-paying stocks and -0.0045 for dividendpaying stocks. Neither coefficient is significantly different from zero at traditional significance levels nor
are the coefficients statistically different from each other. However, the coefficient on the DOWN
variable for non-dividend-paying stocks (-2.22%) is significantly different from zero and, more
importantly, is still significantly lower than the coefficient for dividend-paying stocks (-0.27%), and this
difference is significant at the 1% level. Thus, even after controlling for the market’s sentiment of risk,
investors still prefer dividend-paying stocks over non-dividend-paying stocks in down markets.
In addition to estimating this regression using data form 1986 through 2000, we also re-ran this
model excluding data from 1986 and 1987. Connolly, Stivers and Sun (2004) find that in October 1987
the VIX peaked at around 150%. In the subsample from 1988 through 2000, the VIX peak is about 50%.
To verify that this particular time period is not skewing the results, we re-estimated the regression
excluding data from 1986 and 1987. The results in Panel B excludes 1986 and 1987 data; all results are
31
similar to the results in Panel A, indicating that these results are not due to issues related to the October
1987 market crash and rebound.
Insert Table 11 here
D. Exchange listing
As a further robustness check, we separated firms based on their primary market listing
(NASDAQ or NYSE-Amex) and examined the modified FF model for dividend-paying and nondividend-paying firms on each market separately. Results in Panel A (NYSE/AMEX stocks) and Panel B
(NASDAQ stocks) of Table 12 indicate that exchange listings do not impact our results. Panel A
indicates that the coefficient on the DOWN variable for dividend-paying firms (-0.28%) is insignificantly
different from zero and is larger than that for non-dividend-paying firms (-0.54%) in down markets for
NYSE-Amex stocks, which is significant at the 1% level. Overall, the 0.26% outperformance of
dividend-paying firms over non-dividend-paying firms in down markets is significant at the 5% level.
Similarly, Panel B shows that for NASDAQ stocks, the coefficient on the DOWN variable for dividendpaying stocks is also insignificantly different from zero (-0.47%) and is much larger than the coefficient
for non-dividend-paying stocks (-1.92%); this difference is significant at the 1% level. These results
indicate that for both NYSE-Amex and NASDAQ firms, dividend-paying stocks outperform nondividend-paying stocks in down markets.
Thus, neither NASDAQ nor NYSE-Amex firms are primarily driving the results. As a final
check, in Panel C we compared the DOWN variable for just for the dividend-paying firms to verify that
there was not a significant difference in down markets for the dividend-paying firms across these two
markets. We see there is no significant difference in the DOWN coefficients for dividend-paying stocks
across exchanges.
Insert Table 12 here
32
V.
Signaling vs. Prospect Theory
Collectively, the previous results have shown that dividend-paying stocks outperform nondividend-paying stocks in down markets. These results are inconsistent with traditional asset pricing
models. However, these results are consistent with either prospect theory or a signaling explanation. In
this section, we attempt to differentiate between these two theories of investor behavior to see if either is
more likely to explain these results.
A. Dividend Yield, Tax Clienteles, and Signaling
The previous tests focus only on whether or not firms pay dividends, and not the magnitude of
dividend payments. In this way, we control for the U-shaped pattern in dividend yields that resulted from
non-dividend-paying stocks as noted in Christie (1990), among others. A question arises, however,
whether these results are sensitive to the size of the dividend yield. Prospect theory implies that investors
prefer more cash to less in down markets. If the previous results are due to prospect theory, the results
should be stronger for high-dividend-yield stocks than for low-dividend-yield stocks. In addition, there
should not be much of a difference between the low-dividend-yield and the non-dividend-paying stocks.19
Signaling theory would suggest that just the existence of a dividend – and not its level – is preferred by
investors.20 Thus, if the additional value of the dividend were due to the signaling nature of dividends, it
may matter more that the firm pays a dividend at all and not the magnitude of the dividend, and there
should be a much larger difference between the low-yield and non-dividend-paying firms.21 Therefore,
19
Similarly, these results would be true if there were an asset pricing or tax effect.
In addition, if the results found in this paper were due to an asset pricing result, it should be true that dividend
yields are positively associated with differences in returns in up and down markets.
21
Again, we are not suggesting that each individual dividend payment has great signaling value, but that the regular
payment of a dividend sends a signal as does increasing or decreasing a dividend. In addition, investors know when
to expect this signal. Alternatively, from a prospect theory perspective, the two tests examine different parts of the
loss avoidance that makes investors prefer a certain gain: is it the level of certainty (similar to the signaling theory)
or the size of the gain (similar to the asset pricing theory)?
20
33
our results should vary significantly with dividend yield if prospect theory is the driving explanation, and
should not vary significantly with dividend yield if signaling theory is more correct.
The results in Panel A of Table 13 for the quintile portfolios based on dividend yield of dividendpaying stocks indicate that each quintile loads differently on the Fama-French factors. In particular, the
smallest two dividend yield quintiles have statistically significant positive alphas, while the highest
dividend yield has a statistically significant negative alpha. Not surprisingly, the F-test rejects the null of
equality of the alphas across the quintiles at the 1% level. Even so, we cannot reject the hypothesis that
the coefficients on the DOWN variable are statistically different across the quintiles. This result indicates
that the results presented in Panel B of Table 5 and in previous tables on the asymmetric response of nondividend and dividend-paying stocks to down markets are not related to dividend yield, but rather to the
existence of dividend payments themselves. In fact, all of the coefficients on the DOWN variable are
insignificantly different from zero for all quintiles (except for the lowest dividend yield quintile).
Insert Table 13 here
As a further test, Panel B examines the difference between the non-dividend-paying group and
the quintile with the lowest dividend yield. In this case, the coefficients on the alphas and the HML bookto-market variables were not significantly different from each other. However, the coefficients on the
DOWN variable were significantly different for the non-dividend-paying (-1.34%) and lowest dividend
yield portfolios (-0.67%), further indicating that it is the dividend payment, and not the magnitude of the
payment, that drives previous results.
The results in Panels A and B indicate a much larger difference between the non-dividend-paying
and low dividend yield portfolios than among the dividend-paying portfolios themselves. These results
support the signaling hypothesis over prospect theory or a tax clientele/dividend capture hypotheses for
explaining the reason for the asymmetric responses in up and down markets shown by the data. These
results do not support Brennan (1970) or Litzenberger and Ramaswamy (1979, 1980, 1982), in that the
34
lower dividend yield stocks seem to outperform the high dividend yield stocks on a pre-tax nominal
return basis. Instead, these results are consistent with the findings in Miller and Scholes (1982).
Collectively, the results indicate that it is the payment or non-payment of dividends – not the
level of the payment – that drives the results that dividend-paying firms outperform non-dividend-paying
firms in down markets. To this extent, they support earlier findings by Blume (1980), Litzenberger and
Ramaswamy (1980, 1982), Elton, Gruber, and Rentzler (1983), and Christie (1990) that non-dividendpaying stocks are different from dividend-paying stocks. Further, it seems unlikely that the prospect
theory hypothesis is driving the results, but that dividend signaling (either the dividend-signaling
hypothesis or the free-cash-flow hypothesis) is more likely the cause. Overall, these results support the
signaling explanation that it is the ability to signal with the next regularly scheduled dividend that is
driving the overall results.
B. Size Results
Christie (1990) indicates that return differentials of dividend-paying and non-dividend-paying
stocks may be a function of size. Prospect theory and the signaling explanation for the previous results
have different implications based on the market capitalization of the stock. While a prospect theory
explanation does not differentiate based on the size of the company (cash is always good), the value of the
ability to signal is more valuable for firms for which there is less information. DeAngelo, DeAngelo, and
Skinner (2004) argue that the degree of information asymmetry is likely to be negative related to firm
size. As a result, smaller stocks should show more pronounced effects under the signaling theory
explanation as smaller stocks tend to have less information available for investors, making the signal of
dividends more valuable for these stocks. Therefore, we would expect small dividend-paying stocks
should outperform small non-dividend-paying stocks in declining markets more than large dividendpaying stocks outperform large non-dividend-paying stocks in declining markets if signaling theory is a
more likely explanation.
35
To examine this difference, we estimated the modified Fama-French model for firms quartiled by
their size. As indicated in Panel A of Table 14, the smallest quartile and the second quartile have highly
significant difference (1% level) in the coefficients on the DOWN variable between dividend-paying
firms (-0.20%) and non-dividend paying firms (-2.32%). The next quartile has a significant difference at
the 5% level for the DOWN coefficient, while the largest quartile has no significant difference between
the coefficients on the DOWN variable for dividend-paying versus non-dividend paying firms. In
addition, none of the coefficients for the DOWN variable for dividend-paying stocks were significantly
different from zero. However, the coefficients for the DOWN variable for non-dividend paying stocks for
all but the largest quartile were significantly different from zero at the 1% level. Further investigation
shows that the difference between the coefficients for the DOWN variable between dividend-paying firms
and non-dividend-paying firms is monotonically decreasing as the size quartile increases (from 0.38% for
the largest quartile to -2.52% for the smallest quartile). This result indicates that indeed the smallest firms
have a greater impact of paying a dividend, again supporting a signaling explanation more than a prospect
theory explanation.
Insert Table 14 here
C. Liquidity Results
Liquidity is a desirable feature for most stocks. A number of papers, such as Amihud and
Mendelson (1986), indicate that returns may be positively related to liquidity. In particular, the ability to
switch in and out of stocks based on market conditions may be a function of overall liquidity: for less
liquid stocks, we would expect to see less of a difference in up and down markets than for highly liquid
stocks, as it is easier to move in and out of more liquid stocks. In addition, to the extent that nondividend-paying stocks are less desirable in down markets, we might expect a bigger difference between
up and down markets in highly liquid non-dividend paying stocks than in most dividend-paying stocks.
36
For NYSE and NASDAQ stocks, respectively, Chordia, Roll, and Subrahmanyam (2001) and Van Ness,
Van Ness, and Warr (2004) find that overall market liquidity varies with market movements. In
particular, Chordia, Roll, and Subrahmanyam (2001) note that liquidity changes by much more in down
markets than it does in up markets.
Liquidity may also proxy for a divergence of opinion among investors; if everyone agrees on the
price, there would be little trading.22 Frankel and Froot (1990) find that dispersion Granger-causes
volume, and Harris and Raviv (1993) suggest that trading volume is higher for firms with more
information.23 While prospect theory does not indicate that there should be any difference across liquidity
grouping for the preference of dividend-paying stocks over non-dividend-paying stocks, signaling theory
suggests that since more liquid stocks may have more investor dispersion, the relative difference between
up and down markets between dividend-paying and non-dividend-paying stocks may be highest for more
liquid, high volume stocks. Therefore, while prospect theory would suggest no difference across volume
categories, the signaling explanation suggests that relative difference between dividend-paying and nondividend-paying stocks should be strongest for the most liquid stocks, as the ability to receive a signal is
the most valuable if there is relatively less certainty across investors.
We therefore divided the sample into quintiles based on yearly trading volume in shares and then
examined the results in each volume quintile for dividend-paying and non-dividend-paying stocks. The
results, as shown in Table 15 indicate that the basic results hold: in each of the volume quintiles,
dividend-paying stocks significantly outperform non-dividend-paying stocks in down markets at the 5%
level or better, supporting our main findings. In addition, a number of the other issues also hold. The
coefficients on the DOWN variable decrease monotonically with volume for both non-dividend-paying
and dividend-paying stocks. For the lowest quintile, the coefficients on the DOWN variable are -0.65%
for non-dividend-paying stocks and 0.06% for dividend-paying stocks; neither is significantly different
As Frankel and Froot (1990, p. 182) note “The tremendous volume of … trading is another piece of evidence that
reinforces the idea of heterogenenous expectations, since it takes differences among market participants to explain
why they trade.”
23
See also Varian (1985) and Shalen (1993) for a discussion of differences in opinion, volume and prices.
22
37
from zero. However, the coefficient on the DOWN variable for the largest volume quintile is -1.75% for
non-dividend-paying stocks and -0.63% for dividend-paying stocks; both are significant at the 1% level.
Note also that the coefficients for the DOWN variable for the dividend-paying stocks across all volume
quintiles are higher than any of the coefficients on the DOWN variable for non-dividend-paying stocks.
Again, the magnitude of the difference between the coefficients on the DOWN variable for dividendpaying and non-dividend-paying stocks is monotonically increasing in volume (from -0.71% for the least
liquid to -1.12% for the most liquid). These results indicate that the signaling explanation is more likely
than a prospect theory explanation.
Insert Table 15 here
D. Summary of Results
Collectively these results support a signaling theory explanation more than prospect theory.
Further, the signaling theory explanation is also supported by results in the previous sections. For
example, the tests of dividend changes can be understood in the context of signaling theory: when firms
cut dividends when the market is doing well, it is a clearer signal that they are having problems.
However, if firms cut dividends when the market is doing poorly, there is less information in the dividend
cut or the market may view the cut as an appropriate step by management to undertake given current
economic conditions. Thus, the results in Table 7 reconfirm the earlier results that the asymmetric
responses in up and down markets and provide further support for the dividend signaling hypothesis.
Similarly, the results in Table 8 indicate not only that the dividend-payment is valued as a signal, but that
even during the time periods when a dividend is not being paid (and thus no signal is being given), the
mere knowledge that within three months a signal will be received is valued as well. Our results not only
indicate that there is value in the signal of paying a dividend and not just the dividend payment itself, but
also that there is a value in the knowledge that a signal will be received, further supporting the dividend
signaling hypothesis.
38
VI.
Conclusion
Though anecdotal and academic research claims that dividends are disappearing, we find
evidence that investors are concerned with firms’ dividend policies. Our results indicate that dividendpaying stocks outperform non-dividend-paying stocks by more in declining markets than in advancing
ones. The results are robust to parametric and non-parametric tests. Further, these results hold when we
control for risk (using CAPM, Fama-French three-factor model, and Fama-McBeth style regressions),
different definitions of up and down markets, size, liquidity, and well as in subperiods. In addition, we
show investors respond asymmetrically to dividend increases, decreases, and no changes based on the
state of the market, and that dividend-paying firms outperform non-dividend paying firms even in the
months with no dividend payments.
We also find that these results are not a function of dividend yield, but rather whether the firm
pays a dividend at all. We find a much larger difference between the non-dividend-paying and lowdividend-yield portfolios than among the dividend-paying portfolios themselves, indicating more support
for the signaling hypothesis than the prospect theory or the tax clientele/dividend capture hypothesis.
Also, consistent with the signaling hypothesis, we find small dividend-paying firms and more liquid
dividend-paying firms outperform their non-dividend-paying counterparts in down markets.
We conclude investors are not indifferent to dividend policy. Instead, they value dividends most
highly in the states of the world and for those stocks where the signal provides the most value, i.e., in
declining markets. While our overall results are consistent with both a behavioral explanation through
prospect theory or a signaling explanation, further examination provides additional support for the
dividend signaling literature in that we find that investors value dividends in a manner consistent with
their valuing the signal. Risky firms that most need to signal are thus differentially rewarded, particularly
during times of economic uncertainty. Overall, investors in dividend-paying stocks do better than
investors in non-dividend-paying stocks, particularly in market downturns.
39
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Varian, Hal, 1985, “Divergence of Opinion in Complete Markets: A Note,” Journal of Finance 40, 309317.
43
Table 1
Summary Statistics
Summary statistics for 21,488 NYSE, Amex and NASDAQ listed firms for the 372
calendar months from January 1970 to December 2000. There are 2,161,688 firm
months of which 1,392,422 are non-dividend-paying firm months and 769,266 are
dividend-paying firm months. Up Markets are the 217 months in our sample where the
S&P 500 had a positive return; Down Markets are the 155 months in our sample where
the S&P 500 did not have a positive return. All data is from CRSP. Monthly Volume is
the average monthly trading volume, Price is the average end-of-the-month price per
share, Market Cap is the average end-of-the-month market capitalization, Dividend per
share is the average quarterly dividend per share, Beta is the average end-of-the-month
CRSP estimate of beta, and Number of Obs is the total number of firm-months.
Non-Dividend
Dividend
Paying
Paying
Panel A: All Markets (372 months)
Monthly Volume24
Price
Market Cap.
Dividend per share
18,147
$11.21
$288,530,530
None
20,476
$25.30
$1,321,917,830
$0.078
0.733
1,392,422
0.716
769,266
17,736
$11.49
286,760,200
None
0.725
846,677
21,340
$26.20
1,411,436,090
$0.080
0.708
473,542
Panel C: Down Markets (155 months)
Monthly Volume
18,833
Price
$10.80
Market Cap.
291,171,220
Dividend per share
None
Beta
0.744
Number of Obs.
545,745
19,183
$24.06
1,175,653,940
$0.076
0.728
295,724
Beta
Number of Obs.
Panel B: Up Markets (217 months)
Monthly Volume
Price
Market Cap.
Dividend per share
Beta
Number of Obs.
24
The number of volume observations is less than other variables since some months no volume was reported on
CRSP. Instead of throwing out that entire observation for the month when no volume was reported, we simply
ignored those observations when computing the average monthly volume.
44
Table 2
Average Return for both Up and Down Markets
The table reports the average monthly return to dividend- and non-dividend-paying stocks for the 372
calendar months from January 1970 to December 2000. Up Markets are the 217 months in our sample
where the S&P 500 had a positive return; Down Markets are the 155 months in our sample where the
S&P 500 did not have a positive return. Difference of Differences is the difference of non-dividendpaying stocks minus dividend-paying stocks in up markets minus the difference of non-dividendpaying stocks minus dividend-paying stocks in down markets.
Non-Dividend-paying
Dividend-paying
Differencea
1.01%
1.38%
-0.37%**,w,k
3.72%
-3.03%
3.88%
-2.13%
-0.16%w,k
-0.90%**,w,k
0.74%**
1.07%
1.22%
-0.15%**,w,k
6.09%
-3.02%
5.26%
-2.55%
0.83%**,w,k
-0.47%**,w,k
1.30%**
0.84%
1.68%
-0.84%**,w,k
3.61%
-3.26%
4.26%
-2.03%
-0.65%**,w,k
-1.23%**,w,k
0.58%**
1.10%
1.23%
-0.13%**,w,k
3.19%
-2.87%
2.76%
-1.70%
0.43%**,w,k
-1.17%*,w,k
1.60%**
Panel A: All years
All Markets
Up Markets
Down Markets
Difference Of Differences
Panel B: Subperiods
1970s
All Markets
Up Markets
Down Markets
Difference Of Differences
1980s
All Markets
Up Markets
Down Markets
Difference Of Differences
1990s
All Markets
Up Markets
Down Markets
Difference Of Differences
a
Significance was only tested using parametric tests for the Differences of Differences.
indicates t-test is significant at the 5% level
**
indicates t-test is significant at the 1% level
w
indicates the Wilcoxon sign-rank test is significant at the 1% level
k
indicates the Kruskal-Wallis test is significant at the 1% level
*
45
Table 3
CAPM Risk-Adjusted Abnormal Returns
The table reports the average monthly abnormal return to dividend- and non-dividend-paying stocks
for the 372 calendar months from January 1970 to December 2000. Up Markets are the 217 months in
our sample where the S&P 500 had a positive return; Down Markets are the 155 months in our sample
where the S&P 500 did not have a positive return. Abnormal returns for each firm for each month
were calculated as:
Abnormal Re turn f  ActualRe turnf   rF  f  rM  rF  
where Actual Returnf is the return for firm f for that month, rF is the three-month treasury bill for that
month, rM is the return on the CRSP equally-weighted portfolio, and βf is the beta for stock f.
Non-Dividend-paying
Abnormal Returns
Dividend-paying
Abnormal Returns
Differences
All Markets
0.14%
0.27%
-0.13%**,w,k
Up Markets
0.85%
0.66%
0.19%**,w,k
Down Markets
-0.90%
-0.30%
-0.60%**,w,k
0.79%**
Difference of
Differences a
a
Significance was only tested using parametric tests for the Differences of Differences.
indicates t-test is significant at the 5% level
**
indicates t-test is significant at the 1% level
w
indicates the Wilcoxon sign-rank test is significant at the 1% level
k
indicates the Kruskal-Wallis test is significant at the 1% level
*
46
Table 4
Excess Returns for 16 Portfolios Formed on Size and BE/ME
This table contains the excess returns for portfolios of dividend-paying and non-dividend-paying firms based on size and book-to-market of equity. Excess return, rit – rFt, is
the return for a firm in month t minus the three-month Treasury bill return in month t. The data is from CRSP and Compustat and runs from January 1980 to December
2000. Up markets are when the S&P 500 index return was greater than 0 and down markets are when the S&P 500 index return was 0 or less.
Book – to – market quartiles
Low
Size
NonDiv.
2
3
High
Div.
Difference
Div.
Difference
NonDiv.
Div.
Difference
NonDiv.
Div.
Difference
NonDiv.
Panel A: All Markets
Small
2.14%
2
3.48
3
3.92
Large
3.86
2.29%
2.01
1.85
1.84
-0.15%,w,k
1.47**,w,k
2.07**,w,k
2.02**,w,k
0.54%
1.33
1.38
1.31
1.43%
1.23
1.11
1.16
-0.89%**,w,k
0.10
0.27
0.15
-0.20%
0.26
0.23
0.69
0.72%
0.42
0.29
0.34
-0.92%**,w,k
-0.16w,k
-0.06
0.35w,k
-2.00%
-1.20
-0.80
-0.40
-0.90%
-1.30
-1.20
-0.70
-1.10%**,w,k
0.10
0.40
0.30
Panel B: Up Markets
Small
4.64
2
6.51
3
6.87
Large
7.15
4.21
4.14
4.17
4.11
0.43**,w,k
2.37**,w,k
2.70**,w,k
3.04**,w,k
2.64
3.93
3.90
3.74
2.93
3.03
3.08
3.36
-0.29**,w,k
0.90**,w,k
0.82**,w,k
0.38
1.71%
2.89%
2.68%
2.60%
1.88%
2.23%
2.43%
2.61%
-0.17 w,k
0.66**,w,k
0.25
-0.01
-0.16
2.28
2.03
2.43
0.59
1.37
1.77
2.57
-0.75**,w,k
0.91**,w,k
0.26
-0.14
-1.14**,w,k
-0.43*,w,k
0.31
0.50*
-3.25
-3.31
-2.98
-2.79
-1.29
-2.02
-2.46
-2.80
-1.96**,w,k
-1.29**,w,k
-0.52*,w,k
0.01
-3.69%
-4.36%
-3.85%
-2.11%
-1.42%
-2.57%
-3.37%
-3.50%
-2.27**,w,k
-1.79**,w,k
-0.48
1.39**,w,k
-5.05
-6.93
-5.45
-4.76
-3.37
-5.30
-5.66
-5.47
-1.68**,w,k
-1.63**,w,k
0.21
0.71
Panel C: Down Markets
Small
-2.28
-1.14
2
-2.25
-1.82
3
-1.98
-2.29
Large
-1.89
-2.39
Panel D: Differences of Differences (Up – Down )a
1.57**
2.80**
2.39**
2.54**
1.67**
2.19**
1.34**
0.37
a
2.10**
2.45**
0.73*
-1.40**
Significance was only tested using parametric tests for the Differences of Differences.
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
w
k
indicates the Wilcoxon sign-rank test is significant at the 1% level
indicates the Kruskal-Wallis test is significant at the 1% level
*
47
0.93**
2.54**
0.05
-0.85
Table 5
Fama-French Adjusted Returns
This table contains the coefficients of ordinary least squares regressions across equal-weighted portfolios
of dividend-paying and non-dividend-paying firms. The regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equal-weighted portfolio of either dividend or non-dividend-paying
stocks in month t minus the three-month Treasury bill return in month t, RMRF is the excess return on a
value-weighted aggregate market proxy for month t, SMB is the difference in the returns of a valueweighted portfolio of small stocks and large stocks for month t, HML is the difference in the returns of a
value-weighed portfolio of high book-to-market stocks and low book-to-market stocks for month t, and
DOWN is an indicator variable that equals one if the market is down and zero if the market is up. The
data is from CRSP and runs from January 1970 to December 2000. Up markets are when the S&P 500
index return was greater than 0 and down markets are when the S&P 500 index return was 0 or less.
Intercept
RMRF
SMB
HML
DOWN
Adjusted R2
Panel A: Traditional Fama-French
Non-Dividend-paying
-0.0016
1.0054**
1.1211**
0.2761**
89.4%
Dividend-paying
0.0002
0.9680**
0.4163**
0.5122**
92.3%
**
**
Differences
Panel B: Modified Fama-French for UP/DOWN Markets
Non-Dividend-paying
Dividend-paying
0.0042*
0.9210**
1.0580**
0.2641**
0.0015
**
**
**
0.9497
**
Differences
*
**
0.4027
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
48
0.5096
**
-0.0134**
89.8%
-0.0029
92.3%
**
Table 6
Fama-McBeth Returns
This table contains the average coefficients of monthly ordinary least squares regressions of dividend-paying
and non-dividend-paying firms. The regressions were run cross-sectionally each month for every firm as in
Fama and McBeth (1972). The coefficients reported below are the average coefficients for each group. The
regressions are of the form:
rit  rFt  iT   iTt  iT Ln(Mktcap) t  iT Ln(BVEquity) t  iT DIVt  it
where rit – rFt is the return on a stock in month t minus the three-month Treasury bill return for month t,  is
the firm’s beta measured for the prior year for month t, Ln(Mktcap) is the natural log of the firm’s market
capitalization for month t, Ln(BVEquity) is the natural log of the firm’s book value of equity for month t,
and DIV is an indicator variable that equals one if the firm pays a dividend in month t and zero if the firms
does not pay a dividend in month t. The data is from CRSP and Compustat and runs from January 1970 to
December 2000. Up markets are when the S&P 500 index return was greater than 0 and down markets are
when the S&P 500 index return was 0 or less.
Intercept

Ln(Mktcap)
Ln(BVEquity)
DIV
Down Markets
-0.0201
0.7803
4.1177
0.3817
0.3759
Up Markets
0.0049
0.7563
4.3412
0.5219
0.3608
**
**
**
**
**
Differences
*
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
49
Table 7
Cumulative Abnormal Returns for Dividend Changes in Up and Down Markets
Cumulative abnormal returns (CAR) are calculated for the five days (-2, 2) around the announcement
(day 0) of a dividend change. Abnormal returns are estimated using a modified market model
ARi  ri  rm
where ri is the return on firm i and rm is the equally-weighted market index return. The usual estimation
period is eliminated due to the high probability of previous dividend changes for firms during the
estimation period. The CARs for 18,537 increases, 4,595 decreases, and 93,537 no changes announced
between 1970 to 2000 for 3,294 firms are reported for all markets, up markets, and down markets. Up
markets are when the S&P 500 index return was greater than 0 and down markets are when the S&P 500
index return was 0 or less.
Panel A: All Markets
Dividend Increase
1.013%**
Panel B: Up and Down Markets
Up Markets
Dividend Increase
Dividend Decrease
No Change
*
**
w
k
Dividend Decrease
-0.360%**
No Change
0.102%**
Down Markets
Difference
(Up – Down )
-0.349%*,w,k
-0.051%w,k
-0.124%**,w,k
0.857%**
-0.375%**
0.046%
1.206%**
-0.324%*
0.170%**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
indicates the Wilcoxon sign-rank test is significant at the 1% level
indicates the Kruskal-Wallis test is significant at the 1% level
50
Table 8
Average Return for Up and Down Markets
for Dividend-Paying Stocks during Months with No Dividend Payments
The table reports the average monthly return to dividend- and non-dividend-paying stocks from 1970 to 2000.
Dividend-paying stocks are only included for months during which a quarterly dividend-paying stock did not
pay a dividend. Up markets are when the S&P 500 index return was greater than 0 and down markets are
when the S&P 500 index return was 0 or less. Overall, there were 217 up months and 155 down months in
our sample. Average monthly returns are reported for all stocks and for firms classified by their CRSP beta
deciles.
Panel A – Returns
NonDividendpaying
All
Stocks
3.72%
Up Markets
Dividend- Difference
paying
Down Markets
NonDividend- Difference
Dividend- paying
paying
3.72%
-3.03%
-2.36%
0.00%
-0.67%**, w,k
Difference
of
Differencesa
0.67%**
Panel B – Fama-French Regressions
Intercept
RMRF
SMB
HML
DOWN
Adjusted R2
Non-Dividend-paying
0.0042*
0.9210**
1.0580**
0.2641**
-0.0134**
89.8%
Dividend-paying
-0.0008
0.9527**
0.4036**
0.5161**
-0.0028
92.1%
**
**
**
Differences
*
a
Significance was only tested using parametric tests for the Differences of Differences.
indicates t-test is significant at the 5% level
**
indicates t-test is significant at the 1% level
w
indicates the Wilcoxon sign-rank test is significant at the 1% level
k
indicates the Kruskal-Wallis test is significant at the 1% level
*
51
Table 9
Fama-French Risk Adjusted Returns Removing Smallest (and Largest) Firms
This table contains the coefficients of ordinary least squares regressions across equal-weighted portfolios
of dividend-paying and non-dividend-paying firms. The regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equal-weighted portfolio of either dividend or non-dividend-paying
stocks in month t minus the three-month Treasury bill return in month t, RMRF is the excess return on a
value-weighted aggregate market proxy for month t, SMB is the difference in the returns of a valueweighted portfolio of small stocks and large stocks for month t, HML is the difference in the returns of a
value-weighed portfolio of high book-to-market stocks and low book-to-market stocks for month t, and
DOWN is an indicator variable that equals one if the market is down and zero if the market is up. The
data is from CRSP and runs from January 1970 to December 2000. Up markets are when the S&P 500
index return was greater than 0 and down markets are when the S&P 500 index return was 0 or less.
Intercept
RMRF
SMB
HML
DOWN
Adjusted R2
Panel A: Fama-French Risk Adjusted Returns removing Smallest 25%
Non-Dividend-paying
0.0106**
1.0606**
1.0015**
0.1837**
-0.0081**
94.6%
Dividend-paying
0.0021*
0.9703**
0.3794**
0.5099**
-0.0029
92.3%
**
**
**
**
*
-0.0110**
92.3%
-0.0022
90.4%
Differences
Panel B: Fama-French Risk Adjusted Returns for Middle 50%
(Deleted Smallest 25% and Largest 25%)
Non-Dividend-paying
Dividend-paying
Differences
*
**
0.0102**
0.0001
**
1.0561**
1.0844**
0.2703**
**
**
**
0.8955
**
0.6339
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
52
0.6026
**
**
Table 10
Returns for both Bull and Bear Markets
The table reports the average monthly return to dividend- and non-dividend-paying stocks in bull and bear markets
from 1970 to 2000. Bull and bear markets are defined by Ned Davis research. Overall, there were 259 bull months
and 113 bear months in our sample. Average monthly returns are reported for all stocks and for firms classified by
their CRSP beta deciles. Fama-French regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equally-weighted portfolio of either dividend or non-dividend-paying stocks in month t
minus the three-month Treasury bill return in month t, RMRF is the excess return on a value-weighted aggregate
market proxy for month t, SMB is the difference in the returns of a value-weighted portfolio of small stocks and large
stocks for month t, HML is the difference in the returns of a value-weighed portfolio of high book-to-market stocks and
low book-to-market stocks for month t, and DOWN is an indicator variable that equals one if the market is a bear
market and zero if the market is a bull market. The data is from CRSP and runs from January 1970 to December 2000.
Panel A: Univariate Results
Up
Markets
NonDividend- Difference
Dividend- paying
paying
2.09%
2.23%
Panel B: Fama-French Regressions
Intercept
Non-Dividend-paying
Dividend-paying
Differences
0.0000
0.0008
Down
Markets
NonDividend- Difference
Dividend- paying
paying
-0.14%**, w,k
-2.37%
-0.53%
-1.84%,w, k
RMRF
SMB
HML
DOWN
Adjusted R2
0.9885**
0.9623**
1.1225**
0.4168**
0.2808**
0.5138**
-0.0051
-0.0017
89.5%
92.3%
**
**
*
a
Significance was only tested using parametric tests for the Differences of Differences.
indicates t-test is significant at the 5% level
**
indicates t-test is significant at the 1% level
w
indicates the Wilcoxon sign-rank test is significant at the 1% level
k
indicates the Kruskal-Wallis test is significant at the 1% level
*
53
Difference
of
differencesa
1.70%**
Table 11
Fama-French Risk Adjusted Returns Controlling for Volatility
This table contains the coefficients of ordinary least squares regressions across equally-weighted portfolios of
dividend-paying and non-dividend-paying firms. The regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  d iT DOWN t  viT VOL t  it
where rit – rFt is the return on a equally-weighted portfolio of either dividend or non-dividend-paying stocks in
month t minus the three-month Treasury bill return in month t, RMRF is the excess return on a valueweighted aggregate market proxy for month t, SMB is the difference in the returns of a value-weighted
portfolio of small stocks and large stocks for month t, HML is the difference in the returns of a value-weighed
portfolio of high book-to-market stocks and low book-to-market stocks for month t, DOWN is an indicator
variable that equals one if the market is down and zero if the market is up, and VOL is an indicator variable
that equals one if the market has high volatility and zero if the market has low volatility. The data is from
CRSP and the CBOE and runs from January 1986 to December 2000. Up markets are when the S&P 500
index return was greater than 0 and down markets are when the S&P 500 index return was 0 or less.
RMRF
SMB
HML
DOWN
VOL
Adjusted R2
0.0088**
0.8159**
0.8162**
0.1731**
-0.0222**
-0.0024
86.9%
-0.0022
**
**
**
-0.0027
-0.0045
90.5%
Intercept
Panel A: Including 1986 and 1987 data
Non-Dividend-paying
Dividend-paying
Differences
0.9057
0.2974
**
0.6364
**
**
**
Panel B: Excluding 1986 and 1987 data
Non-Dividend-paying
0.0112**
0.7498**
0.7706**
0.1501*
-0.0277**
-0.0011
84.8%
Dividend-paying
-0.0013
0.8632**
0.2773**
0.6497**
-0.0045
-0.0006
88.2%
**
**
**
Differences
*
**
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
54
Table 12
Fama-French Risk Adjusted Returns Controlling for NYSE and NASDAQ
This table contains the coefficients of ordinary least squares regressions across value-weighted portfolios
of dividend-paying and non-dividend-paying firms by exchange listing, either NYSE or NASDAQ. The
regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equally-weighted portfolio of either dividend or non-dividend-paying
stocks listed on the NYSE/AMEX (NASDAQ) exchange in month t minus the three-month Treasury bill
return in month t, RMRF is the excess return on a value-weighted aggregate market proxy for month t,
SMB is the difference in the returns of a value-weighted portfolio of small stocks and large stocks for
month t, HML is the difference in the returns of a value-weighed portfolio of high book-to-market stocks
and low book-to-market stocks for month t, and DOWN is an indicator variable that equals one if the
market is down and zero if the market is up. The data is from CRSP and runs from January 1970 to
December 2000. Up markets are when the S&P 500 index return was greater than 0 and down markets
are when the S&P 500 index return was 0 or less.
RMRF
SMB
HML
DOWN
AdjustedR2
-0.0003
1.1219**
0.9474**
0.5791**
-0.0054**
89.9%
0.0009
1.0232**
0.3490**
0.5051**
-0.0028
92.1%
**
**
0.0070**
0.7804**
1.1430**
0.0709
-0.0192**
85.3%
0.0023
0.7965**
0.5419**
0.5279**
-0.0047
84.5%
**
**
**
Intercept
Panel A: NYSE/AMEX Stocks
Non-Dividendpaying
Dividend-paying
Differences
*
Panel B: NASDAQ Stocks
Non-Dividendpaying
Dividend-paying
Differences
**
Panel C: Dividend-paying NYSE/AMEX vs. Dividend-paying NASDAQ Stocks
NYSE/AMEX
0.0009
1.0232**
0.3490**
0.5051**
-0.0028
92.1%
NASDAQ
0.0023
0.7965**
0.5419**
0.5279**
-0.0047
84.5%
**
**
Differences
*
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
55
Table 13
Fame-French Risk Adjusted Returns Partitioned by Dividend Yield
This table contains the coefficients of ordinary least squares regressions across equal-weighted portfolios
of dividend-paying and non-dividend-paying firms. The regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equal-weighted portfolio of either dividend or non-dividend-paying
stocks in month t minus the three-month Treasury bill return in month t, RMRF is the excess return on a
value-weighted aggregate market proxy for month t, SMB is the difference in the returns of a valueweighted portfolio of small stocks and large stocks for month t, HML is the difference in the returns of a
value-weighed portfolio of high book-to-market stocks and low book-to-market stocks for month t, and
DOWN is an indicator variable that equals one if the market is down and zero if the market is up. The
data is from CRSP and runs from January 1970 to December 2000. Up markets are when the S&P 500
index return was greater than 0 and down markets are when the S&P 500 index return was 0 or less.
Intercept
RMRF
SMB
HML
DOWN
Adjusted R2
Panel A: Dividend Yield Comparisons
Lowest dividend yield
0.0092**
1.1117**
0.4625**
0.2911**
-0.0067*
89.7%
2
0.0028*
1.0520**
0.4504**
0.5183**
-0.0034
89.9%
3
-0.0001
0.9885
**
0.4352
**
**
-0.0013
90.7%
4
-0.0020
0.8990**
0.3864**
0.5982**
-0.0021
90.6%
*
**
**
**
-0.0008
85.0%
Highest dividend yield
Differences
-0.0025
**
0.6985
**
0.2804
**
0.5839
0.5568
**
Panel B: Comparison of non-dividend-paying and lowest yielding stocks
Non-Dividend-paying
0.0042*
0.9210**
1.0580**
0.2641**
-0.0134**
89.8%
Lowest dividend yield
**
**
**
**
*
89.7%
0.0092
Differences
*
**
1.1117
**
0.4625
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
56
0.2911
-0.0067
*
Table 14
Fame-French Risk Adjusted Returns by Size
This table contains the coefficients of ordinary least squares regressions across value-weighted portfolios of dividendpaying and non-dividend-paying firms by size groups. The regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equally-weighted portfolio of either dividend or non-dividend-paying stocks in month t
minus the three-month Treasury bill return in month t, RMRF is the excess return on a value-weighted aggregate market
proxy for month t, SMB is the difference in the returns of a value-weighted portfolio of small stocks and large stocks for
month t, HML is the difference in the returns of a value-weighed portfolio of high book-to-market stocks and low bookto-market stocks for month t, and DOWN is an indicator variable that equals one if the market is down and zero if the
market is up. The data is from CRSP and runs from January 1970 to December 2000. Up markets are when the S&P 500
index return was greater than 0 and down markets are when the S&P 500 index return was 0 or less.
Smallest
Non-Dividend-paying
Intercept
-0.0066*
RMRF
0.6832**
SMB
1.1378**
HML
0.4174**
DOWN
-0.0232**
Adjusted R2
72.5%
Dividend-paying
-0.0086**
0.6386**
0.6971**
0.5888**
-0.0020
72.4%
**
**
**
-0.0146**
87.6%
-0.0034
86.0%
Differences
2
Non-Dividend-paying
Dividend-paying
Differences
3
Non-Dividend-paying
Dividend-paying
Differences
Largest
Non-Dividend-paying
Dividend-paying
Differences
*
**
0.0088**
1.0041**
1.1790**
0.4024**
-0.0011
**
**
**
0.8165
0.6968
0.6594
**
**
**
**
**
0.0121**
1.1170**
0.9391**
0.0981**
-0.0068**
95.1%
**
**
**
-0.0011
91.1%
0.0008
0.9433
0.5972
0.5701
**
**
**
**
0.0134**
1.0339**
0.6000**
-0.1601**
-0.0003
93.2%
**
**
**
**
-0.0041
91.5%
0.0043
1.0348
**
0.0924
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
57
0.4034
**
*
Table 15
Fame-French Risk Adjusted Returns by Volume
This table contains the coefficients of ordinary least squares regressions across value-weighted portfolios of dividend-paying and
non-dividend-paying firms by volume groups. The regressions are of the form:
rit  rFt  iT  biT RMRFt  siTSMBt  h iT HML t  diT DOWN t  it
where rit – rFt is the return on a equally-weighted portfolio of either dividend or non-dividend-paying stocks in month t minus the
three-month Treasury bill return in month t, RMRF is the excess return on a value-weighted aggregate market proxy for month t,
SMB is the difference in the returns of a value-weighted portfolio of small stocks and large stocks for month t, HML is the
difference in the returns of a value-weighed portfolio of high book-to-market stocks and low book-to-market stocks for month t, and
DOWN is an indicator variable that equals one if the market is down and zero if the market is up. The data is from CRSP and runs
from January 1970 to December 2000. Up markets are when the S&P 500 index return was greater than 0 and down markets are
when the S&P 500 index return was 0 or less.
Lowest
Intercept
RMRF
SMB
HML
DOWN
Adjusted R2
Non-Dividend-paying
-0.0122**
0.7230**
0.8198**
0.4980**
-0.0065
74.1%
Dividend-paying
-0.0033**
0.6731**
0.5251**
0.5123**
0.0006
82.1%
Differences
2
**
-0.0111**
0.9953**
1.1023**
0.7269**
-0.0069
83.3%
Dividend-paying
-0.0027**
0.9083**
0.6354**
0.6260**
0.0006
88.8%
**
*
**
*
*
Non-Dividend-paying
0.0015
1.0813**
1.1926**
0.5375**
-0.0113**
86.7%
Dividend-paying
0.0014
1.0122**
0.5680**
0.5939**
-0.0014
90.8%
**
Differences
4
0.0156**
1.1656**
1.1928**
0.2320**
-0.0151**
90.5%
Dividend-paying
0.0047**
1.0829**
0.3790**
0.5246**
-0.0050
89.9%
**
**
**
**
**
Non-Dividend-paying
0.0312**
1.2073**
1.2567**
-0.1641**
-0.0175**
90.1%
Dividend-paying
0.0057**
1.1313**
0.0405
0.3627**
-0.0063**
91.6%
**
**
*
Differences
*
**
Non-Dividend-paying
Differences
Highest
*
Non-Dividend-paying
Differences
3
**
**
indicates t-test is significant at the 5% level
indicates t-test is significant at the 1% level
58