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Juicing the dividend yield: Mutual funds and the demand for dividends

Author

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  • Harris, Lawrence E.
  • Hartzmark, Samuel M.
  • Solomon, David H.

Abstract

Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.

Suggested Citation

  • Harris, Lawrence E. & Hartzmark, Samuel M. & Solomon, David H., 2015. "Juicing the dividend yield: Mutual funds and the demand for dividends," Journal of Financial Economics, Elsevier, vol. 116(3), pages 433-451.
    • Handle: RePEc:eee:jfinec:v:116:y:2015:i:3:p:433-451
    DOI: 10.1016/j.jfineco.2015.04.001
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    More about this item

    Keywords

    Dividends; Mutual funds; Behavioral finance; Payout policy;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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