Keeping up with the Joneses: Corporate Dividends and Common Institutional Blockholders

We find that firms are more inclined to distribute dividends when a larger fraction of other firms held by the same common institutional blockholder (CIB) have paid dividends. This effect also holds for the level of and the change in dividend payment. We establish causality using exogenous perturbations in peer relations. In particular, we show that the similarity in firms’ dividend policies becomes greater after the exogenous creation of new peer relations between them due to asset managers’ mergers and Russell index reconstitutions. The peer effect is stronger when peers have maintained relations with the focal firm for a longer period or when focal firms’ stock liquidity is higher. We also find that a CIB is more likely to vote against manager sponsored proposals in nondividend-paying investee firms if a larger proportion of the CIB’s other investee firms have paid dividends. Overall, our results provide fresh evidence of dividend clienteles.