A Test of the Catering Theory of Dividends: The case of the Japanese Electric Appliances Industry

Abstract

We test the catering theory of dividends using data from firms in the Japanese electrical appliances industry. Our empirical investigations reveal that, in the Japanese electrical appliances industry, corporate managers do not consider catering behavior in either their dividend initiation decisions or their continuation decisions. This result is particularly important because it is different from existing evidence for the US. We also find that one of the most important determinants of dividend initiations among Japanese electrical appliances industry firms is the value-weighted dividend yield in the industry. Namely, we find that after the value-weighted dividend yield declines, Japanese firms in the industry tend to initiate dividend payments.