Peer Influence on Dividend Policy

Johan Lund Andersen & Kevin Davidsen

Student thesis: Master thesis


By analyzing the quarterly structure of dividends, we find some evidence of peer influences on dividend policies. Specifically, several of our results show that firms are more likely to follow the four-quarter structure in dividend increases (four-quarter structure) when peer firms follow it. The term four-quarter structure reflects a growing tendency for firms to increase dividends every fourth quarter. That makes dividends more predictable to the market, and this affects the firms’ ability to use dividends as a signaling device (Andres & Hofbaur, 2017). This emphasizes the relevance of the four-quarter structure, and in this thesis, we contribute to the understanding of why firms adopt the four-quarter structure. The decision to follow the four-quarter structure somewhat depends on industry prospects, and all members of a peer group face the same uncertainty around these industry prospects. Therefore, as the firm observes that more and more peers start following the four-quarter structure, this indicates that it would be beneficial for the firm as well. Thus, we hypothesize that the probability that a firm follows the four-quarter structure increases as more peers start following the structure. We use a logit regression model to test this hypothesis. Our baseline results show evidence of significant peer effects, and most of our robustness test further support this result. However, our results are sensitive to controls for unobserved peer group factors. Hence, while we find evidence of peer effects, we cannot rule out that this is driven by common peer group factors. Our study suffers from methodological limitations in terms of peer group definition and controls for common factors, and we encourage future research to address these limitations. Consequently, our hope is that this thesis could inspire future research on peer influences on the decision to adopt the four-quarter structure.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2018
Number of pages129
SupervisorsDaniel Streitz