Corporate Dividends: Views of Institutional Investors*
Corporate dividend policy has long been a subject of debate, discussion, and research in finance, but the field has not reached a sense of closure.1 Black  expressed this lack of closure over a decade ago as the "dividend puzzle." Marsh and Merton  note that the pivotal point in this puzzle is the classic work of Miller and Modigliani , which demonstrated the irrelevance of dividend policy for determining the firm's cost of capital.
Although progress has been made in the past decade in answering some dividend questions, research has helped raise some new questions. For example, whether dividends "matter" or "don't matter" is an issue investigated in numerous studies, yet Ang [2, p. 58] notes that:
...dividend theories do not fit neatly into the relevance vs. irrelevance dichotomy. These are finer shades of relevance (or irrelevance), depending on whether the question concerns the investors, the firms, the market, or the tax authority.
Ang  also notes that the new theoretical and empirical results have brought about a shift in the emphasis of the research question about dividends from whether it matters to whether the market participants behave rationally. This shift is evident by the growing body of research that focuses on the behavioral aspects of dividend policy. Examples of such research include Lintner's  seminal study, Miller's  examination of behavioral rationality of dividends, and studiesby Baker, Farrelly, and Edelman  and Baker and Farrelly  on management views of dividend policy. Thus, despite extensive past examination, much remains to be done concerning dividend policy.
In this paper, we investigate the views of institutional investors including portfolio 1 Because the dividend policy literature has been adequately summarized elsewhere, an overall review of this literature is not provided in this paper. For a summary of the dividend policy literature, see, for example, Ang , Brealey and Myers , Copeland and Weston , and Weston and Copeland , * The authors acknowledge with thanks the research assistance of Chris Bevan and Chul-ho Lee, and they appreciate the helpful suggestions of two anonymous reviewers. Research support was provided by The American University, Batterymarch Financial Management, and the Rutgers University Research Council. managers and security analysts concerning various issues involving corporate dividend policy. Such topics as dividend patterning, information signaling through dividends, and perceived relationships between dividends and share prices are examined. Investigation of these issues is worthwhile in order to determine to what extent practitioners agree with the various messages currently being transmitted by the academic literature on dividends.
The importance of the study also lies in its ability to provide contrast between theory and practice that may be of interest to financial managers who actually make dividend decisions, to investors who interpret such decisions, to theoreticians engaged in building models explaining corporate dividend behavior, and to educators guiding students in putting together various elements of the "dividend puzzle."
Our study extends the current trend in conducting behavioral dividend policy research. This study uses a survey research approach to analyze dividend issues, not from the viewpoint of the firm, the market, or the tax authority, but from the viewpoint of investors (the first of the four parties mentioned by Ang). Attention is placed on institutional investors because preferences for cash dividends have already been analyzed from the individual's perspective by Shefrin and Statman . However, little research has focused on corporate dividends from the view of institutional investors. The views of institutional investors are deemed relevant because of their significant impact on the market. …