Dividends and Investment: Evidence of Heterogeneous Firm Behavior

Aparna Mathur, Nirupama S. Rao, Michael R. Strain, Stan A. Veuger

Research output: Contribution to journalArticlepeer-review


This article investigates the relationship between dividend payouts and corporate investment. We find significant heterogeneity in the relationship across firms—heterogeneity that helps reconcile competing results in the literature. Drawing on financial filing data from Compustat, we first broadly replicate the statistically significant negative relationship estimated by Auerbach and Hassett. We show that this relationship does not hold if the variation is restricted to within-firm only. Our null results suggest a relatively precise zero estimate for the mean firm. Next, we investigate heterogeneity in the relationship between dividends and investment. Using quantile regression methods, we find that this negative relationship is concentrated at the top of dividends distribution: only firms from the seventieth percentile and above exhibit a strongly negative relationship, and it is these firms that drive the negative estimates of pooled ordinary least square regressions reported in prior work.

Original languageEnglish (US)
Pages (from-to)769-787
Number of pages19
JournalPublic Finance Review
Issue number6
StatePublished - Nov 1 2016


  • corporate finance
  • dividends
  • firm heterogeneity
  • investment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Public Administration


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