The Effect of Dividends on Consumption
By Malcolm P. Baker, Stefan Nagel, Jeffrey Wurgler. 2007
131 citations recorded by the source corpus.
Classical models predict that the division of stock returns into dividends and capital appreciation does not affect investor consumption patterns, while mental accounting and other economic frictions predict that investors have a higher propensity to consume from stock returns in the form of dividends. Using two micro data sets, we show that investors are indeed far more likely to consume from dividends than capital gains. In the Consumer Expenditure Survey, household consumption increases with dividend income, controlling for total wealth, total portfolio returns, and other sources of income. In a sample of household investment accounts data from a brokerage, net withdrawals from the accounts increase one-for-one with ordinary dividends of moderate size, controlling for total portfolio returns, and also increase with mutual fund and special dividends. We comment on several potential explanations for the results.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/359db5e7dcb5935512a861499b9218693a619cff
Citations in the corpus
- Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains (2019, unknown): “Carroll (1998), De Nardi (2004), Straub (2018), Saez and Stantcheva (2018) and other papers cited in the review by Benhabib and Bisin (2018). Like Atkinson (1971), De Nardi (2004) assumes a warmglow bequest motif with a different curvature than the period utility while alive, a particular form of no”
- A Lintner Model of Payout and Managerial Rents (2012, unknown): “(There exist clienteles of investors who want smooth dividends—see Baker, Nagel, and Wurgler (2007), for example—but we do not invoke them to explain smoothing.)”
- Stock Market Returns and Consumption (2020, unknown): “Baker et al. (2007) discuss in detail why this is inconsistent with fully rational behavior but is in line with mental accounting by households.29 At the root of the inconsistency with a fully rational model is the fact that, to the extent that stock prices reflect the value of all future…”