Ownership Structure and Investor’s Sentiments for Dividends

Abstract

This paper is built upon the predictions of the catering theory of dividends and examines the interaction effect between catering incentives and corporate ownership structure in a behavioral context with catering effect. We intend to evaluate how the ownership structure affects the disposition of companies in Eurozone countries to adjust their payouts to the investors’ sentiments. To achieve this aim, we propose a dividend model that incorporates a variable at a firm-level proxying for the catering effect. The results from the estimation of the model by using the GMM provide interesting results.Our findings of the empirical analysis reveal an interaction effect between catering and ownership variables, particularly the level of managerial ownership and the interaction between the first and second largest shareholders, taking into account whether there is collusion or contestability between them.