Article2013

A Servant to Many Masters: Competing Shareholder Preferences and Limits to Catering

18 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract We study what determines catering through the payout policy and how catering affects firm value. We create a catering index, measuring how the firm caters to its investors’ payout preferences. The index is based on the revealed payout preferences of mutual funds holding the firm’s stocks. Catering is constrained by market segmentation and dispersion in investor payout preferences. It is also associated with positive value effects: Firms increasing their catering index also experience an increase in value. Furthermore, greater catering ability is associated with a more positive market reaction to corporate announcements of equity issues and dividend payouts.

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References

1997On Persistence in Mutual Fund Performance 1973Risk, Return, and Equilibrium: Empirical Tests 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 1986Large Shareholders and Corporate Control 1961Dividend Policy, Growth, and the Valuation of Shares 2003Corporate Governance and Equity Prices 1997Industry costs of equity 1995The Limits of Arbitrage

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