The Shareholder Base and Payout Policy

This paper documents a relation between the shareholder base and payout policy. Consistentwith the idea that the shareholder base is related to the cost of external financing we find thatfirms with small shareholder bases have lower payout levels and maintain higher cash holdingsthan firms with large shareholder bases. We use decimalization of trading quotes in 2001 asan event that a!ected the shareholder base of firms without directly a!ecting payout policy.We find that an increase in the shareholder base surrounding decimalization leads to increasedpayout and reduced cash holdings. Additionally, we find that firms with small shareholder basesare less likely to undertake a repurchase (reduce the shareholder base even further) and are morelikely to pay special dividends.[...]