The effect of fiduciary standards on institutions' preference for dividend-paying stocks

Kristine Watson Hankins, Mark J. Flannery, M. Nimalendran

Research output: Contribution to journalArticlepeer-review

14 Scopus citations


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.

Original languageEnglish
Pages (from-to)647-671
Number of pages25
JournalFinancial Management
Issue number4
StatePublished - Dec 2008

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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