Disappearing Dividends, Catering, And Risk

Fama and French (2001a) show that the propensity to pay dividends declines significantly between 1978 and 1999. The authors examine this "Disappearing dividends" puzzle through the lens of risk and report two main findings. Risk is a significant determinant of the propensity to pay dividends, and it explains roughly 40% of disappearing dividends. The authors find little support for the view that disappearing dividends reflects firms' catering to transient fads for dividends. Absent risk controls, proxies for fads matter, but these proxies are insignificant control for risk.