We investigated the dividend payout policy of the companies listed in the Canadian stock market to establish the relevancy of life-cycle theory of dividends among the sample stocks. While investigating whether dividend is disappearing in the Canadian stock market, we analyzed the proportion of firms paying cash dividends as in Fama and French (2001) and the aggregate real dividends paid by industrial firms as in DeAngelo, DeAngelo and Skinner (2004). Our sample ranges from 182 firm-years data in 1997 and to 999 firm-years in 2007. For the life-cycle theory of dividends, we also estimate a firm’s stage in its financial life cycle by the amount of its retained earnings as in DeAngelo, DeAngelo and Stulz (2006). Our findings indicate that proportion of dividend paying firms to total firms is on a decline but the aggregate real dividends of dividends payers is increasing. Our findings support the view provided by DeAngelo et. al. (2004) that dividends in Canadian listed firms are not disappearing. In addition, we report a positive and statistically significant relationship between the probability that a firm pays dividends and its earned/contributed capital mix, thus supporting the life-cycle theory of dividends.
Are dividends disappearing and is the life-cycle theory of dividends relevant to Canadian stock market?