Consuming Dividends. (17th February 2022)

• Record Type: Journal Article
• Authors: Bräuer, Konstantin; Hackethal, Andreas; Hanspal, Tobin
• Editors: Ramadorai, Tarun
• Is Part Of: Review of financial studies. Volume 35:Number 10(2022)
• Page Start: 4802
• Page End: 4857
• Publication Date: 2022-02-17
• Subjects: G50 -- G40 -- G11 -- D12 -- D14; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhac010
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: This paper studies why investors buy dividend-paying assets and how they time consumption accordingly. We combine administrative bank data linking customers' consumption and income to portfolio data and survey responses on financial behavior. We find that private consumption is excessively sensitive to dividend income. Investors across wealth, income, and age distributions increase spending precisely around days of dividend receipt. Our results are at odds with a number of existing rational and behavioral explanations, such as financial constraints and impulsiveness. Instead, consumption responses reflect "planned" excess sensitivity, driven by investors who select dividend portfolios, anticipate dividend income, and plan consumption accordingly.