Propensity to pay dividends and catering incentives in Thailand

Purpose - The purpose of this paper is to examine whether the catering incentives of dividends can influence firms' dividend payment decisions in Thailand. Design/methodology/approach - The sample includes all listed stocks in the Stock Exchange of Thailand during the years 1992-2009, excluding the firms from financial industries and firms with incomplete information. The catering incentives are measured by dividend premium. The firms' dividend payment decisions are measured by propensity to pay dividends and decision to change dividends. Findings - The findings yield qualitatively consistent with the previous research. After controlling for the effect of the Asian Crisis during 1997-1999, the result shows that the firm's decision to pay dividend could be affected by the catering incentives. Furthermore, dividend premium will reduce the probability that firms will decide to cut dividend payment from previous years. Research limitations/implications - The result is limited to the availability of historical data. The Stock Exchange in Thailand has been established for only 35 years. With the lack of availability and completeness of data, the historical data could be gathered for only 18 years. Practical implications - Investors in Thailand show their preference for dividend incomes. This could be the catering incentive of the firm to decide to pay dividends. Originality/value - This paper offers the evidence of catering incentives of dividend proposed by Baker and Wurgler in the emerging market. Even though the result is not strong, it can be the evidence supporting the catering theory of dividend, not only in well-developed markets, but also in emerging markets such as Thailand.