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A Servant to Many Masters: Competing Shareholder Preferences and Limits to Catering

Published online by Cambridge University Press:  31 January 2014

Alberto Manconi  and
Massimo Massa
Alberto Manconi
Affiliation:
a.manconi@tilburguniversity.edu, Tilburg University, Finance Department andCentER, PO Box 90153, 5000LE Tilburg, The Netherlands;
Massimo Massa
Affiliation:
massimo.massa@insead.edu, INSEAD, Blvd de Constance, 77305 Fontainebleau Cedex, France.
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Abstract

We study what determines catering through the payout policy and how catering affects firm value. We create a catering index, measuring how the firm caters to its investors’ payout preferences. The index is based on the revealed payout preferences of mutual funds holding the firm’s stocks. Catering is constrained by market segmentation and dispersion in investor payout preferences. It is also associated with positive value effects: Firms increasing their catering index also experience an increase in value. Furthermore, greater catering ability is associated with a more positive market reaction to corporate announcements of equity issues and dividend payouts.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 6 , December 2013 , pp. 1693 - 1716
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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