[Fama and French (2001a) show that the propensity to pay dividends declines significantly between 1978 and 1999. We examine this "disappearing dividends" puzzle through the lens of risk and report two main findings: (i) Risk is a significant determinant of the propensity to pay dividends, and it explains roughly 40% of disappearing dividends; (ii) We 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 once we control for risk. Our results are robust to an extensive battery of robustness tests that vary samples, time periods, proxies for fads, the types of empirical tests, and the nature of payout decisions made by firms.]

While folklore in finance holds that split valuation effects are due to dividend increases associated with splits, little is known about magnitudes of dividend and nondividend components of split announcement effects. We find that splits and dividends are indeed informational substitutes, a notion we characterize more precisely, but a significant portion of split valuation effects, 46% according to our estimates, cannot be attributed to dividend information in splits. Our techniques extend the literature on conditional event-study methods and we illustrate their practical value in testing hypotheses and analyzing data not amenable to analysis by standard procedures.

While folklore in finance holds that split valuation effects are due to dividend increases associated with splits, little is known about magnitudes of dividend and nondividend components of split announcement effects. We find that splits and dividends are indeed informational substitutes, a notion we characterize more precisely, but a significant portion of split valuation effects, 46% according to our estimates, cannot be attributed to dividend information in splits. Our techniques extend the literature on conditional event-study methods and we illustrate their practical value in testing hypotheses and analyzing data not amenable to analysis by standard procedures.

Fama and French (2001a) show that the propensity to pay dividends declines significantly between 1978 and 1999. We examine this "disappearing dividends" puzzle through the lens of risk and report two main findings: (i) Risk is a significant determinant of the propensity to pay dividends, and it explains roughly 40% of disappearing dividends; (ii) We 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 once we control for risk. Our results are robust to an extensive battery of robustness tests that vary samples, time periods, proxies for fads, the types of empirical tests, and the nature of payout decisions made by firms. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: [email protected], Oxford University Press.