Managerial Catering and Peer Influence on Dividend Payments

This study offers a behavioral explanation for peer influence on dividend payments in China. It specifically shows how investors’ reliance on reference points leads them to value the dividends of a focal firm more highly when these dividends align with those of peer firms. Managers cater to these investor preferences to capitalize on short-term mispricing, as suggested by the catering theory. Using data from A-share non-financial listed companies on the Shanghai and Shenzhen stock exchanges from 1995 to 2023, this study examines the peer influences of both cash and stock dividends separately using the instrumental variable method, confirming the presence of both effects. Detailed analyses demonstrate that the catering theory is more strongly associated with the influence of cash dividends than with that of stock dividends. The influence of cash dividends is especially pronounced under conditions of high arbitrage restrictions, short managerial horizons, or low catering costs, which supports the catering explanation. This study not only complements existing theoretical explanations for peer influences on dividends but also enriches the catering theory proposed by Baker and Wurgler, providing empirical evidence of dividend peer influences in emerging capital markets.