Product market competition, reputation, and dividend policy

This paper examines the effect of product market competition on the dividend policy of firms. Previous studies report different relationships between product market competition and dividend payout policies. This paper aims to clarify the relationship between product market competition and dividend payout policies by dividing dividend-paying firms into two groups, high dividend firms and low dividend firms, based on the level of dividends. We hypothesize that when the product market is more competitive, high dividend firms pay more dividends, but low dividend firms pay less dividends. According to our test using all firms listed on the NYSE, AMEX, and NASDAQ stock exchanges from the CRSP, the results support our hypothesis. This paper also emphasizes the importance of the dividend reputation in the analysis of dividend-related matters. Firms with dividend reputation pay higher dividends than firms with no reputation.

Automated summary

This study examines the impact of product market competition on firms' dividend policies by dividing them into high dividend and low dividend groups. It found that in more competitive markets, high dividend firms pay more dividends, while low dividend firms pay less. Furthermore, the importance of dividend reputation is emphasized, with firms having a reputation paying higher dividends.