TY - JOUR
T1 - The effect of fiduciary standards on institutions' preference for dividend-paying stocks
AU - Hankins, Kristine Watson
AU - Flannery, Mark J.
AU - Nimalendran, M.
PY - 2008/12
Y1 - 2008/12
N2 - Many researchers apparently believe that some institutional investors prefer dividend-paying stocks because they are subject to the "prudent man" (PM) standard of fiduciary responsibility, under which dividend payments provide prima facie evidence that an investment is prudent. Although this was once accurate for many institutions, during the 1990s most states replaced the PM standard with the less-stringent "prudent investor" (PI) rule, which evaluates the appropriateness of each investment in a portfolio context. Controlling for the general decline in dividend-paying stocks, we find that institutions reduced their holdings of dividend-paying stocks by 2% to 3% as the PI standard spread during the 1990s. Studies of asset pricing and corporate governance should no longer consider dividend payments when evaluating the actions of institutional investors.
AB - Many researchers apparently believe that some institutional investors prefer dividend-paying stocks because they are subject to the "prudent man" (PM) standard of fiduciary responsibility, under which dividend payments provide prima facie evidence that an investment is prudent. Although this was once accurate for many institutions, during the 1990s most states replaced the PM standard with the less-stringent "prudent investor" (PI) rule, which evaluates the appropriateness of each investment in a portfolio context. Controlling for the general decline in dividend-paying stocks, we find that institutions reduced their holdings of dividend-paying stocks by 2% to 3% as the PI standard spread during the 1990s. Studies of asset pricing and corporate governance should no longer consider dividend payments when evaluating the actions of institutional investors.
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U2 - 10.1111/j.1755-053X.2008.00029.x
DO - 10.1111/j.1755-053X.2008.00029.x
M3 - Article
AN - SCOPUS:70350647463
SN - 0046-3892
VL - 37
SP - 647
EP - 671
JO - Financial Management
JF - Financial Management
IS - 4
ER -