On the Timing of Dividend Initiations

We study the timing and significance of dividend initiations in the life cycle of a firm. Following a sample of firms from the IPO onwards, and using a hazard model to examine which factors predict initiations, we find that: (i) initiators are large firms with relatively high profitability and cash balances, and low growth rates; and (ii) systematic risk does not change significantly around initiations, in contrast to previous studies on dividend changes. These results are contrary to the signaling theories of dividend policy. Finally, we find mixed evidence that a firm's propensity to initiate dividends is affected by the market sentiment for dividends.