Mandatory dividend rules and the investment decision: The case of Chile

Chilean companies are forced by law to distribute at least 30% of their liquid profits. The purpose of this paper is to analyze whether this mandatory dividend rule has an impact on investment decisions. Based on accounting data and by using the discontinuous regression approach, our results show that there are no significant differences between the investment plans of Chilean companies that pay dividends and those that do not. Moreover, consistent with the signaling hypothesis, our results also show that firms with a greater probability of paying an excess dividend (above the minimum required by the law) are those with more investment opportunities and more financial constraints.