Does the Catering Theory of Dividend Apply to the French Listed Firms?

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This paper tests the catering theory of dividend in the French market. It investigates how prevailing investor’s demand for dividend payers proxied by the dividend premia affects the dividend policy. The dividend premia are measured at the market level and at the firm level. We find that the market demand for dividends measured by dividend premia affects the decision to start, to continue or to omit to pay dividends and the decision to increase the dividends. However, catering theory does not seem to affect the magnitude of the dividend changes since most results are not significant.
JEL classification: G02; G35.
Keywords: Dividends; Payout policy; Catering; Dividend premium; Behavioral corporate finance.