Institutional Holdings and Payout Policy

Yaniv Grinstein and Roni Michaely

November 2001

Abstract
We examine the relation between institutional holdings and payout policy in US public
firms. We find that firms attract institutions through their payout policy. On average,
institutions increase their holdings in firms that repurchase more shares, and decrease
their holdings in firms that pay more dividends. Our tests indicate that institutions do not
actively change dividend policy or repurchase policy. Our results are inconsistent with
models in which dividends attract institutional clientele, and with models in which
institutions cause firms to increase payout.

1. Introduction
Institutional investors are one of the major investor groups in the US. Between
1990 and 1996 institutions held more than 50% of equity of US industrial firms,
compared to around 35% a decade earlier. In all types of firms, small and large, there is a
trend towards more institutional holdings. How institutional investors affect corporate
financial policies, and consequently corporate value, is an important question that
receives more attention these days by academics and practitioners alike. Along these
lines, this paper investigates the relation between institutional ownership and payout
policy. We are able to shed some light on several of the payout theories and how
institutional holdings interact with repurchases and dividends.
There are several reasons to believe that institutions differ from private investors.
Institutions have better capabilities to monitor managers. The main reason is that
typically they have more at stake and therefore devote more resources to monitoring (see
for example Grossman and Hart, (1980), and Shleifer and Vishny, (1986)). Recent papers
such as Gillan and Starks (2000), and Carleton, Nelson and Weisbach (1998) provide
supporting evidence to the monitoring role of institutions, although the extent and
effectiveness of institutional monitoring is still debatable (Roe, 1997).
Because they are relatively big players, institutions are typically also more
informed. Not only do they devote more resources to become informed, but they, at
times, privy to corporate information that individual investors do not have (see for
example Michaely and Shaw, (1994)). In fact, one of the justifications to introducing the
recent regulation FD (Financial Disclosure), was that it will end the special access to

companies, long enjoyed by industry analysts and institutional investors. (Financial

Times, Nov 11th 2000).
Based on these unique features of institutions, a large literature works under the
notion that institutions are better in monitoring and gathering information.
In addition, institutions have two other features that distinguish them from
individual investors: taxes and regulations. Some institutional investors are taxed
differently. For example, pension funds, university endowment funds and non-for-profit
institutions do not pay taxes on their capital gains and dividends. This may create some
institutional clientele that is based on taxes.
Finally, unlike most private investors, institutions are fiduciaries. They invest on
behalf of others, and are therefore subject to agency conflicts. Consequently, they are
constrained by a number of rules aimed at preventing them from speculating with other
peoples money. For example, those institutions governed under strict prudent man rules
invest a larger proportion of their holdings with prudent stocks. Age, lengthy and stable
dividend and earnings record, low risk, and high external validation have been used as
indicators of prudence, (see for example, Del Guercio (1996)).
These institutional features have led some researchers to suggest an interaction
between corporate payout policy, and institutional holdings.
This paper explores this interaction. We derive implications of theories that relate
firms payout policy and institutional holdings. We then test these hypotheses using a
large data of institutional holdings and corporate payouts between 1980 and 1996.

We identify several types of potential relationships. General agency theories, such

as Townsend (1979), and Jensen (1986), suggest that with enhanced monitoring,
managers are likely to share more of the profits with the investors. These theories imply
that more institutional holdings will lead to larger payouts (holding all else constant).
Naturally, these theories should be more relevant in situations where firms face severe
agency problems, and free cash-flow problems.
Shleifer and Vishny (1986) and Allen Bernardo and Welch (2000), argue that
firms pay dividends to attract institutions. Firms want institutions to come and monitor in
order to increase value. Institutions prefer dividends because of common institutional
charter and prudent man rule restrictions that make it more difficult for many institutions
to purchase investments with low dividend payout (Brav and Heaton (1998)), and
because of the comparative tax advantage that some institutions have over dividend
relative to individual investors. Thus, the basic implication of Shleifer and Vishny (1986)
and Allen Bernardo and Welch (2000), is that higher dividends will lead to larger
institutional holdings. If we assume that firms determine their payout policy first, and
only then choose between dividends and repurchases, then higher repurchases will lead to
less institutional investors.
The last type of models that associate institutional holdings and payout are based
on asymmetric information. Allen Bernardo and Welch (2000) argue that undervalued
firms who want to signal their true worth will pay dividends because dividends attract
institutions, who are better in revealing value. Brennan and Thakor (1990) and Barclay
and Smith (1988) argue that adverse selection problems lead small and uninformed
investors to prefer dividends over repurchases, even though dividends are taxed more

heavily, because they are likely to lose if they tender their shares when informed
investors are in the market. Since dividends are paid pro-rata, they do not bear such
adverse selection costs. Large and informed shareholders do not have this problem. They
will prefer stock repurchases - the least costly payout for them. Since institutions are
likely to be larger and more informed, the theory implies that firms with more
institutional holdings will increase repurchases, and decrease dividends.
Several empirical works have examined aspects of the relation between
institutions and dividend policy. Michaely, Thaler and Womack (1995) investigate the
share of institutional ownership around 182 dividend omissions. They do not find a
significant change in ownership after the omission. However, Brav and Heaton (1998)
find a drop in institutional ownership around dividend omissions after the ERISA
regulations took effect in 1974. Binay (2001) examines both initiations and omissions
and reports a significant drop in institutional ownership after omissions and an increase in
institutional ownership after initiations. Perez-Gonzalez (2000) looks at changes in firms
dividend policy as a result of tax reforms. He finds that dividend policy is much more
affected by the tax reform when the largest shareholder is individual, than when the
largest shareholder is an institution or when there is no large shareholder. Finally, Del
Guercio (1996) examines the role of dividends in the portfolio selection of institutions.
She finds that after controlling for several other factors such as market capitalization,
liquidity, risk and S&P ranking, dividend yield has no power in explaining banks
portfolio choice, and has negative explanatory power in mutual funds portfolio choice.
Overall her evidence indicates that the prudent man rule has a role in portfolio selection

but that dividends do not play a major role in it. To our knowledge, there is no empirical
evidence regarding the relation between repurchases and institutional ownership.
Using annual data on dividends, repurchases and institutional holdings during the
period 1980-1996, our research provides a number of new results on the relation between
institutional holdings and by implications also on the validity of some of the payout
theories mentioned above. We highlight four of them here. First, when comparing
dividend-paying firms to non-dividend paying firms, there is clear evidence that
institutions prefer dividend-paying firms, even after holding size, risk, market to book
and a host of other variables constant.
The second finding however is that institutions do not show any preference
towards firms that pay high dividends. Regardless of size or market-to-book ratio
category, institutions do not have a preference for high dividend-paying firms. In fact, we
find some evidence that institutions prefer low dividend stocks to high dividend stocks.
We further examine the change of institutional holdings in response to changes in
dividends and find a similar result: when firms increase their dividends, the portion held
by institutions does not increase and even declines. Thus there is no evidence to support
the notion that higher dividends lead to higher ownership by institutions, as some of the
theories suggest.
Third, we find that institutions prefer firms that repurchase their shares. The
evidence indicates that institutional ownership is higher for repurchasing firms relative to
non-repurchasing firms. However, unlike the evidence about dividends, we find strong
evidence that firms that repurchase more (relative to either their market value or to their

book value of assets) have higher institutional ownership. We also find that when firms
change their repurchase policy, the institutional holding changes in the same direction.
Forth, when investigating whether institutions affect payout policy we find that
changes in institutional ownership has no impact on payout policy. That is, there is no
evidence that increase in institutional ownership leads to either increase in dividend or
increase in repurchases.
Does this evidence support any of the theories? On one hand, the positive relation
between repurchases and institutional holdings is consistent with the agency theory (e.g.,
Jensen (1986)) and with the adverse selection theory of Brennan and Thakor (1990) and
Barclay and Smith (1986). On the other hand, other aspects of these theories are not
supported by the data. For example, our last finding suggests that institutions do not
affect payout policy but that payout policy attracts institutions. Also, there is no
significant association between institutions and repurchases in firms with asymmetric
information problems (adverse selection), nor do we find significant association between
these variables in firms with more free cash flow problems (agency).
The paper is organized as follows. In the next section we review the relevant
theoretical literature and derive the hypotheses. In section III we describe our database
and define the variables we use. Section IV contains our tests and results, and section V
concludes.
2. Payout and Institutions - Hypotheses
What should be the relation between institutional holdings and payout policy? In a
Modigliani-Miller world, payout policy is irrelevant, and therefore there should be no

relation between payout policy and institutional holdings. Any relation should therefore
stem from market frictions, and from unique characteristics of institutional investors.
The models we describe in this section are special in that they tie payout policy to
market imperfections and unique institutional characteristics shared by most institutions.
These characteristics include (a) higher holdings relative to average individual investors,
and therefore better incentives to monitor and more information about firms (b)
regulations that tilt institutional investments toward prudent stock. Therefore, we find it
useful to test these models looking at institutions as a group, rather than testing these
models on different types of institutions.
General agency models, such as Townsend (1979), suggest that with enhanced
monitoring, managers are likely to share more of the profits with the investors. If
investors extract at least some of the benefits of monitoring from the manager, lower
monitoring cost implies higher payout. Although Townsends model more readily applies
to debt contracts, (see Diamond (1984), and Gale and Hellwig (1985)), recent agency
theories that rely on incomplete contracting suggest a more direct implications to equity
and payout. For example, Fluck (1998) shows that equity is a tacit agreement between
investors and the manager, in which investors have the right to replace the manager if she
does not pay out enough cash to the shareholders. A direct implication of Flucks model is
that the equilibrium payout level is inversely related to the cost of replacing the manager.
Jensens (1986) free cash flow hypothesis implies similar relationship between the cost to
discipline the manager and her propensity to pay cash to the investors. Jensen also
suggests that such agency conflicts are likely to occur in more stable firms with low

growth opportunities and large amounts of cash. We summarize the predictions of the
general agency models in H1.

H1: All else equal, firms with more institutional holdings will subsequently pay out more
cash (either through dividends or through repurchase). We should expect to find this
relation in firms that are more prone to free cash flow problems.

Shleifer and Vishny (1986) and Allen Bernardo and Welch (2000), suggest that
firms pay dividends to attract institutions. Firms want institutions to come and monitor in
order to increase value. Shleifer and Vishny explicitly assume that institutional investors
enhance value by facilitating takeovers, because they are big enough to overcome the free
rider problem. Allen, Bernardo and Welch assume a more general positive relationship
between institutional holdings and firm value, which can stem from their ability to
monitor or to facilitate takeovers.
In these models, institutions like dividends for two reasons. First, institutions are
less likely to be sued by investors if they invest in firms that pay more dividends, because
these firms are considered more prudent. Second, some institutions are taxed less heavily
on dividends. Although dividends in their models might be costly to both institutions and
individual investors, they attract relatively more institutions, because of the relative tax
advantage that these institutions have.
The tax argument applies only to institutions that are taxed differently, namely
endowments and pension funds. The regulation argument applies more broadly to many

more types of institutions. Therefore, the fundamental implication of their model is that
firms that pay more dividends will attract more institutions as a group.
Similarly, firms that repurchase more will attract more individual investors and less
institutions. Hypotheses 2 and 3 summarize the predictions of Shleifer and Vishny (1986)
and Allen Bernardo and Welch (2000):

H2: All else equal, firms that pay more dividends will attract more institutional investors.

Although H1 and H2 describe a similar relation between dividends and

institutional holdings, they differ from one another. H1 predicts that institutional
ownership should determine payout. H2 predicts that dividend should determine
institutional ownership. The reason they differ from one another is that the agency
models assume that higher payout is the result of institutional monitoring, and Allen,
Bernardo and Welch and Shleifer and Vishny assume that higher payout is used to attract
institutions. In section three we test for the difference in the causality between these two
hypotheses.
Allen Bernardo and Welch (2000) offer a second explanation, relating institutional
holdings to payout policy. In this explanation, which is based on asymmetric information,
undervalued firms who want to signal their true worth will pay dividends because
dividends attract institutions, for the same reasons described earlier. Their prediction
about the relationship between institutional holdings and dividends is that higher
dividends should attract more institutional investors, similar to prediction H2. However,
since this model relies on signaling argument, it is more likely to hold in firms that

10

operate in environment where asymmetric information is likely to be a significant

problem.
Brennan and Thakor (1990) and Barclay and Smith (1988) offer a different
explanation to the choice of payout policy. They point to the disadvantage that stock
repurchases have to uninformed investors. In their models, uninformed are likely to lose
if they tender their shares when informed investors are in the market, since informed will
sell only when the stock is overvalued. Therefore, if the adverse-selection cost from
repurchase is severe enough to outweigh its relative tax advantage, uninformed will
prefer dividends to repurchases. Dividends do not entail information disadvantage
because they are paid pro-rata, despite their tax disadvantage. Since informed investors
do not suffer from the adverse selection problem, they will prefer stock repurchases - the
least costly payout. Since institutions are likely to be larger and more informed, the
theory implies that firms with more institutional ownership are likely to shift from
dividends to repurchases. This prediction is summarized in H4 and H5:

H3: All else equal, firms with more institutional holdings will repurchase more. We
should expect to find this relation in firms that are more prone to asymmetric-information
problems.

H4: All else equal, firms with more institutional investors should pay less dividends. We
should expect to find this relation in firms that are more prone to asymmetric-information
problems.

11

3. Data Description and Definition of Variables

Our institutional-holdings data consists of end-of-year total institutional stock
holdings for every public US firm between 1980 and 1996. The data is obtained from
CDA spectrum, which gathered the information from institutional 13F SEC filings.
Institutions that file 13F are (1) banks (2) insurance companies (3) investment companies
(mutual funds) (4) investment advisors (most of the large brokerage firms), and (5) others
(pension funds and endowments). Only institutions with holdings of $100 million or
more under their discretion need to file. The filings are submitted quarterly and they
include institutional holdings in every US firm, as long as the holdings are more than
$200,000 or 10,000 shares.
We match the institutional-holding data with the CRSP and Compustat databases,
and exclude financial companies and utilities (SIC codes 6xxx, 48xx, and 49xx).
Table 1 presents summary statistics of institutional holdings for every size quintile and
over the years. Every year we sort firms according to their market capitalization, and
group them into size quintiles. We then group all firm-years within each quintile over the
three time periods 1980-1985, 1986-1990 and 1991-1996, and calculate median and mean
institutional holdings for each group.
Two patterns appear in the data. The first pattern is that institutional ownership
increases over the years; from value-weighted mean holdings of 38.79% in the earlier
period (1980-85) to 53% in the later period (1991-96). The second pattern is that
institutional holdings concentrate in large firms. In fact, in the lowest quintile, mean

12

institutional holdings are about 15%. These findings are consistent with the findings of
Gompers and Metrics (2001).
We define Dividend Yield as 4Div(t)/P(t), where Div(t) is the last quarterly
dividend paid in year t, and P(t) is the price at the end of year t, adjusted for stock splits
between the dividend date and the last day of year t. To measure changes in dividend
payout we use the measure (Div*(t)-Div(t1))/P(t-1), where Div*(t) is Div(t), adjusted
for stock splits between the announcement dates of Div(t) and of Div(t-1). The reason we
do not use a simple difference in dividend-yield is that such measure is noisy, since time
series variations in stock prices probably overwhelm time series variations in dividends.
We realize that an alternative measure of an annual dividend is the sum of all quarterly
dividends during the year. As noted by Benarzi, Michaely and Thaler (1997), such
measure will not accurately capture changes in dividends. Using last quarter dividend
(multiplied by four) is more accurate. In any case, we repeat our tests with annual
dividends (not reported), and find no significant changes in our results.
In section 5 we check the robustness of our results with other dividend measures.
These measures include dividend to EBITDA ratio, Dividend to net earnings ratio, and
dividend to book ratio. We also repeat our tests with a three-year average of dividend
yield.
To measure repurchases, we use repurchase yield: the dollar amount of stock and
preferred stock that the firm bought during its fiscal year, as reported in the statement of
cash flow (Compustat item 151), and divide it by the market capitalization in the
beginning of the year. We choose the market capitalization in the beginning of the year,

13

because using market cap value before the repurchase gives less weight to extreme
repurchase events.
The dollar repurchase has a drawback that it includes repurchases of not only
common stocks but also of other types of stocks such as preferred stocks. However,
repurchases of securities other than common stocks represents a very small portion of
firms repurchase activity, (see Allen and Michaely (2001) and Stephan and Weisbach
(1988)).
To measure changes in repurchases we use the dollar amount of repurchases in
year t minus the dollar amount of repurchases at the end of year t-1 and divide it by the
value of the firm at the end of year t-2.
In section 5 we check the robustness of our results with other repurchase
measures. These measures include repurchase to book ratio, and a three-year average of
repurchase yield.
We use a host of exogenous variables to account for differences across firms. The
variables include beta of the stock, market to book ratio, industry dummy variables for
the 1 digit SIC codes, and market capitalization. The definitions of all the variables
appear in appendix A.

4. Tests
4.1 Do dividend-paying firms attract institutions?
We first study whether dividend policy attracts institutional holdings. We divide
the sample in any given year into firms that pay dividend during that year and firms that
do not pay dividend. Every year, and for every size quintile, we further divide the group

14

that pays dividend into three equal categories: low dividend-yield, medium dividendyield and high-dividend yield firms. We then group all firms within each category over
the three time periods, 1980-1985, 1986-1990 and 1991-1996, and compute the median
and mean institutional holdings at the end of the following year. We present the results in
Table 2.
Table 2 panel A shows mean and median institutional holdings of dividend-paying
and non dividend-paying firms. Across the different periods, average and median
institutional holdings in dividend-paying firms are significantly higher than their holdings
in non-paying firms. However, the difference is mitigated considerably between 19911996. Between the years 1981-1985 and 1991-1996 average institutional holdings in
dividend paying firms increased by about 50% (from 28.77% to 46.24%), whereas the
increase in holdings in non dividend-paying firms is more than 150% (from 10.74% to
26.45%).
Table 2 panel B presents institutional ownership across dividend paying firms. On
average, a firm belonging to the low dividend-yield group does not have lower
institutional holdings than a firm belonging to the high dividend yield group. In the
highest size quintile they are about the same. In lower quintiles, average holdings in low
dividend-paying firms are somewhat higher than average holdings in high dividendpaying firms.
Our main conclusions from Table 2 are that (a) on average, institutions have
higher holdings in dividend paying firms than in non dividend paying firms, (b) the

15

difference in these holdings decreases over the years (c) Institutions do not have higher
holdings in high dividend paying firms. In fact, in recent years we find an opposite trend.1
By and large, these results do not support the hypothesis that institutions are
attracted to high dividend. However, one severe drawback of this analysis is that it does
not account for other characteristics that attract institutions, and that are correlated with
dividend yield. For example, the high dividend yield group is composed of very stable
firms. The low dividend-yield group is composed of relatively more risky firms. The
observed pattern might be due to these differences. Also, the division to size quintiles
might not be accurate enough in holding size constant, since the t-statistic for differences
in size within quintiles is significant in the highest size-quintile.
To account for these problems, we regress institutional holdings at the end of year
t+1 on dividend yield at the end of year t, accounting for size and a list of other
exogenous firm characteristics.2 We use the beta of the stock and firm size to account for
risk, market to book to account for growth opportunities, and dummy variables for
different industry sectors to account for industry preferences. A definition of each of these
variables appears in Appendix A.
Table 3 presents the results of the regression analysis. We perform three
regressions. The first uses all firm-years, the second uses the Fama-MacBeth (1973)
method, and the third uses only firms in the highest size quintile. In the Fama-MacBeth
method we perform separate regression for every year between 1980 and 1996 and then
1

We also looked at median and mean holdings for each of the institution types, grouping by market cap and
market to book deciles, and did not find a positive relationship between institutional holdings and dividend
yield.
2
Since the dependent variable is bounded, the regression suffers from a misspecification. To tackle this
problem we repeated the analysis using an inverse Logit transformation to the dependent variable. All
results stay the same. We include in the paper the regressions with the bounded dependent variable because
the coefficients of the explanatory variables in these regressions have a straightforward interpretation.

average the coefficients over the years. We regress over the highest size quintile since this
quintile accounts for about 80% of the total market value, and, presumably, institutions
look much more on larger firms when making their investment decisions. Finally, for
these regressions and for all regressions in this paper we take off 1% outliers.
All regressions show that institutions prefer dividend-paying stock to nondividend paying stock. A dividend paying firm has between 5.48% and 9.28% more
institutional holdings, (depending on the regression). At the same time, we find a strong
negative relationship between dividend yield and institutional holdings. An increase of
1% in dividend yield reduces institutional holdings by 0.4%-0.6%. These results are
significant at the 1% significance level.
Other characteristics that significantly affect institutional holdings are market
value, market to book, beta, and industry sectors. An increase in log market value by 1, is
associated with about 7% increase in institutional holdings. Firms with higher beta have
also more institutional holdings. This suggests institutional preference towards
corporations with more market risk. An increase of market to book ratio by 100% results
in a decrease in institutional holdings by about 1%, suggesting that institutions prefer
firms with lower growth opportunities. This result is consistent with the findings of
Gompers and Metrics (2001), and might suggest that institutions are attracted to less
speculative stocks.
The contradicting results of paying versus non-paying firms and high dividend
yield versus no dividend yield firms are inconsistent with the hypothesis that institutions
prefer dividend. It could be that institutions prefer dividend-paying stock because of

17

prudent man regulations, but once a firm is paying dividend, institutions prefer it to be
low.
The level regression attempts to control for differences in firms other than
dividend yield. There might be, however, some non-measurable characteristics such as
institutional beliefs, information differences, and institutional preferences that may create
institutional shareholdings benchmark levels that are different for each firm.
Consequently, firm-specific, omitted variables are better controlled for by relating the
effect of changes in dividends to changes in institutional holdings. Such analysis nets out
many firm-specific and investor-specific omitted considerations. Our next test is therefore
to analyze changes in institutional holdings on changes in dividends.
In Table 4 Panel A we regress changes in institutional holdings from time t to time
t+1 on changes in dividend from time t-1 to time t. The results reject the hypothesis that a
positive change in dividend increases institutional holdings. In fact, the Fama MacBeth
regression and The Largest Quintile regression points to a negative relationship. In Table
4 Panel B we repeat the regression for every market-to-book quintile, and for every size
quintile. We do not find a positive relationship between changes in dividends and changes
in institutional holdings in any of these regressions.

4.2 Does institutional ownership affect dividend?

Thus far, we looked at whether dividend policy attracts institutions. The test has a
direct implication on the theories by Allen, Bernardo and Welch (2000) and Shleifer and
Vishny (1986), who predict that firms attract institutions with dividends. An implication
of the general agency theory, however, is that higher level of institutional holdings will

18

lead to more monitoring, and therefore more payout. To check whether institutional
holdings affect payout policy we repeat the level and the difference regressions, with the
dividend at the end of year (t+1) as the dependent variable, explained by institutional
holdings and other exogenous variables at the end of year t. The level regression (not
reported) provides similar results as the one in Table 4, with a negative coefficient on
institutional holdings. This result, however, is not surprising given the high correlation in
dividend payouts across time. A better way is to check if changes in institutional holdings
explain changes in dividends. Table 5 shows the results of such regression. Both the
whole-sample regression and the FamaMacBeth regressions show that changes in
institutional holdings do not affect changes in dividend. This result does not support the
agency theory.
In Table 5 Panel B we repeat the regression for every market-to-book quintile, and
for every size quintile. We do not find a significant relationship between changes in
dividends and changes in institutional holdings in any of these regressions.

4.3 Do firms that repurchase attract institutions?

Our next step is to study the relationship between repurchase policy and
institutional holdings. We first check whether firms who repurchase more attract
institutional holdings. We start by dividing the sample in any given year into firms that
repurchase shares during that year and firms that do not repurchase. Every year, and for
every size quintile, we further divide the group that repurchases shares into three equal
categories: low repurchase yield, medium repurchase yield and high repurchase yield. We
then group all firms within each category over the three time periods 1980-1985, 1986-

19

1990 and 1991-1996, and compute the median and mean institutional holdings at the end
of the following year. We present the results in Table 6.
Table 6 panel A compares holdings in repurchasing and non-repurchasing firms.
Across the different periods, average and median institutional holdings in repurchasing
firms are higher than in non-repurchasing firms, for almost every size quintile. Panel B
shows holdings for the low, medium and high-yield groups. On average, a firm belonging
to the low repurchase yield group has lower institutional holdings than a firm belonging
to the high repurchase-yield group. This result is especially pronounced in the largest
size-quintile (5) and between 1986 and 1996, after the safe harbor rule led many firms to
repurchase shares. This result suggests that institutions prefer high repurchase yield to
low repurchase yield.
To further explore this possibility, we regress institutional holdings at the end of
year t+1 on repurchase yield at the end of year t, accounting for a list of exogenous firm
characteristics. Since firms in the early 80s were subject to strict repurchasing rules,
there was not much repurchase activity back then (see Grullon and Ikenberry (2000) and
Allen and Michaely (2000)). Therefore, we omit firm-years in the early period (19801985) from our regression analysis.
Table 7 presents the results. The regressions show that institutional holdings have
higher holdings in firms that have high repurchase yield. The coefficients of the
repurchase yield in all of the regressions are significant at the 1% level. They are,
however, smaller than the coefficient in the dividend case. An increase in repurchase
yield by 1% increases institutional holdings by only 0.06%-0.1%.

20

Other characteristics that significantly affect institutional holdings are similar to

those presented in Table 3.
To account for unobservable, firm-specific effects, we also analyze the relation
between changes in repurchases and changes in institutional holdings. This time,
however, we do not exclude initiating and omitting firms from our sample because of
the sporadic nature of repurchases. Excluding these firms decreases the number of
qualifying firms by about 75%. Table 8 presents the results. The results in Panel A
suggest that an increase in institutional holdings is followed by an increase in repurchase.
This result is especially robust in the whole-sample and the Fama-MacBeth regressions.
This result reaffirms the previous result that institutions prefer repurchasing firms to nonrepurchasing firms.
Table 8 Panel B presents the regression results for each of the size quintiles and
market to book quintiles. The coefficient of the change-in-repurchase variable is
significant in the second and fourth quintiles, but is insignificant in the others. Similarly,
it is significant in the first, third and fourth market-to-book quintiles, but not in the others.

4.4 Do Institutions Affect Repurchase Policy

Thus far, we looked at whether repurchase policy attracts institutions. An
implication of the agency theory and of the asymmetric information theory by Brennan
and Thakor (1990) and Barclay and Smith (1987) is that higher level of institutions will
lead to an increase in repurchases. To check whether institutional holdings increase
repurchase policy we repeat the level and the difference regressions, with the repurchase
yield at the end of year (t+1) as the dependent variable, explained by institutional

21

holdings and other exogenous variables at the end of year t. The level regression (not
reported) shows that the level of institutional holdings does not explain repurchase policy.
Table 9 reports the regression of changes in institutional holdings and changes in
repurchases. Both the whole sample regression and the FamaMacBeth regression shows
that changes in institutional holdings do not explain changes in repurchases. The
regression in the largest size quintile and in the lowest market to book quintile suggest
even a negative relationship. This result does not support the agency theory and the
asymmetric information theory.
5. Robustness Analysis
To check the robustness of our results, we repeat all of our regressions using different
proxies for dividend payout and repurchase payout. For dividend payout we use dividend
to net income, dividend to EBITDA and dividend to book ratios. Table 10 presents the
coefficients of the different dividend-payout proxies. In panel A we repeat the regression
in Table 3, using these three proxies. There is a significantly negative relationship
between dividend payout and institutional holdings, for each of the proxies. In the largestquintile regressions, none of the coefficients is significant.
In Panel B we repeated the regression in Table 4. None of the proxies of changes in
dividends explains changes in institutional holdings. Similar results were found when we
repeated the regression in Table 5 (shown in Panel C).
Our conclusion from these findings is that institutions are not attracted to firms that pay
more dividends, nor do they affect firm policy towards more dividends. These results do
not support the Theories of Shleifer and Vishny (1986) and Allen, Bernardo and Welch

22

(2000). We get some mixed results about whether an increase in dividends is associated
with a significant decrease in institutional holdings.
We use three proxies for repurchase payout: repurchase to net income, repurchase to
EBITDA and repurchase to book ratios. Table 10 presents the coefficients of the different
repurchase-payout proxies. In panel A we repeated the regression in Table 7, using these
three proxies. There is a significantly positive relationship between repurchase payout
and institutional holdings, for each of the proxies. We get similar results in the largestquintile regressions for two of the three proxies.
In Panel B we repeat the regression in Table 8, using the three different proxies for
changes in repurchase payout. All the proxies are significantly positive. However, there is
no significantly positive relationship in the largest quintile.
In Panel C we check whether changes in institutional holdings explain changes in
dividends. We repeat the regression in Table 9 for each of the repurchase-payout proxies.
None of the coefficients is significant, except for the repurchase-to-EBITDA proxy in the
largest quintile regression. The coefficient of that proxy is significantly negative at the
5% significance level.
Our conclusion from these findings is that institutions are attracted to firms that
repurchase more shares. This effect is robust to four types of proxies. The relationship,
however, seems less robust in the largest quintile, where in three of the four proxies we
find a positive but non- significant relationship.
We do not find that an increase in institutional holdings causes an increase in repurchase.
By and large, a change in institutional holdings has no effect on changes in repurchase.
Our findings provide some support to the theories of Brennan and Thakor (1990) and

23

Barclay and Smith (1987). They both argue that there should be a positive association
between repurchases and institutional holdings. Their theories, however, do not assume
that firms attract institutions, but that institutions determine repurchases. Our results are
inconsistent with these premises.
5.
Conclusion
Using annual data on dividends, repurchases and institutional holdings during the
period 1980-1996, we test the relationship between payout policy and institutional
holdings. We find no support for the predictions of Allen Bernardo and Welch (2000), and
Shleifer and Vishny (1986), that more dividends attract institutional holdings. Institutions
indeed prefer dividend-paying firms to non dividend-paying firms, but within dividendpaying firms, institutions are not attracted to more dividends.
We do find a positive relationship between repurchases and institutional holdings.
Firms that repurchase more attract more institutions. Our results indicate, however, that
once firms attract institutions, they do not repurchase more. This result does not support
the hypothesis that institutions increase their holdings to force managers to pay out more
shares. The positive association between repurchases and institutional holdings is
consistent with the asymmetric information arguments by Brennan and Thakor (1990)
and Barclay and Smith (1987). However, their prediction that firms with more institutions
increase the level of repurchases is inconsistent with our results.

24

Appendix A
Data Definitions
Beta: Beta for the NYSE/AMEX traded firms is calculated based on the Scholes
Williams (1977) method, using daily returns over the number of trading days during year
t, and the NYSE/AMEX value-weighted market index. Beta for NASDAQ firms is
calculated based on the average daily bid-ask spread using the NASDAQ Value-Weighted
Market Index.
Market to Book: Market to Book is the market value of equity plus book value of
preferred dividend plus book value of total liabilities minus book value of deferred taxes,
divided by book value of assets, all taken from Compustat, and calculated at the end of
fiscal year t.
Log (Value (t)): The natural log of the market value of the firm at the end of year t. The
market value of the firm is the number of shares outstanding at the last trading day in
year t, multiplied by the price at the last trading day.
Dividend Yield (t): 4Div(t)/P(t), where Div(t) is the last quarterly dividend paid in year t,
P(t) is the price at the end of the year, adjusting for stock splits between the dividend date
and the last day of year t.
Repurchase Yield (t): the dollar amount of stock and preferred stock that the firm
bought during its fiscal year, as reported in the statement of cash flow (Compustat item
151), and divide it by the market capitalization in the beginning of the year.

25

References
Allen, Franklin, and Roni Michaely, 2001, Payout Policy Handbook of Economics,
edited by George Constantinides, Milton Harris, and Rene Stulz , North-Holland.
Allen, Franklin, Antonio Bernardo and Ivo Welch, 2000, A theory of dividends based on
tax clientele, Journal of Finance, 55(6), 2499-2536.
Barclay, Michael J. and Clifford W. Smith, Jr., 1988, "Corporate Payout Policy: Cash
Dividends versus Open-Market Repurchases," Journal of Financial Economics, 22 (1),
61-82.
BenArzi, Shlomo, Roni Michaely, and Richard Thaler, 1997, Do Changes in Dividends
Signal the Future or the Past, Journal of Finance, 52 (3), 1007-1034.
Binay, Murat, 2001, Do Dividend Clienteles Exist? Institutional Investor Reaction to
Dividend Events, working paper, University of Texas, Austin.
Brav, Alon, and J.B. Heaton, 1998, Did ERISAs prudent man rule change the pricing of
dividend omitting firms?, Working paper, Duke University.
Brennan, Michael J., and Anjan V. Thakor, 1990, Shareholder Preferences and Dividend
Policy, Journal of Finance, 45 (4), 993-1018.
Carleton, Willard T., James M. Nelson, and Michael S. Weisbach, 1998, The Influence
of Institutions on Corporate Governsance through Private Negotiations: Evidence from
TIAA-CREF, Journal of Finance 53(4), 1335-1362.
Del Guercio, Diane, 1996, "the distorting effect of the prudent-man laws on institutional
equity investments," Journal of Financial Economics, 40, 31-62.
Diamond, Douglas, 1984, Financial Intermediation and Delegated Monitoring, Review
of Economic Studies, 51, 393-414.
Fama, Eugene F., and James D. Macbeth, 1973, "Risk, Return and Equilibrium:
Empirical Tests," Journal of Political Economy, 81, 607-636.
Fluck, Zsusanna, 1998, Optimal Financial Contracting: Debt versus Outside Equity,
Review of Financial Studies, 11, 383-418.
Gale, Douglas, and Martin Hellwig, 1985, Incentive-Compatible Debt Contracts: The
One-Period Problem, Review of Economic Studies, 52, 647-663.
Gompers, Paul, and Andrew Metrics, 2001, Institutional Investors and Equity Prices,
The Quarterly Journal of Economics, 229-259.

26

Grossman, Sanford J. and Oliver D. Hart, 1980, "Takeover Bids, the Free-Rider Problem,
and the Theory of the Corporation, Bell Journal of Economics, 11,42-54.
Grullon, Gustavo and David Ikenberry, 2000, What do we Know about Stock
Repurchase?, Journal of Applied Corporate Finance, forthcoming.
Jensen, Michael C., 1986, "Agency Costs of Free Cash Flow, Corporate Finance, and
Takeovers," American Economic Review, 76 (2), 323-329.
Michaely, Roni, Richard H. Thaler and Kent Womack, 1995, "Price Reactions to
Dividend Initiations and Omissions: Overreaction or Drift?," Journal of Finance 50 (2),
573-608.
Michaely, Roni and Wayne H. Shaw, 1994, "The Pricing of Initial Public Offerings: Tests
of the Adverse Selection and Signaling Theories," Review of Financial Studies, 7 (2),
279-319.
Miller, Merton H., 1977, Debt and Taxes, Journal of Finance, 32, 261-75.
Perez-Gonzalez, Francisco, 2000, Large Shareholders and Dividends: Evidence from
U.S. Tax Reforms, Working Paper, Harvard University.
Roe, 1997, The Political Roots of American Corporate Finance, Journal of Applied
Corporate Finance 9, 8-22.
Shleifer Andrei and Robert Vishny, 1986, Large shareholders and corporate control,
Journal of Political Economy 94 (3), 461-488.
Stephens, Clifford, and Michael Weisbach, 1988, Actual share reacquisitions in open
market repurchases programs, Journal of Finance, 53 (1), 313-333.
Townsend, R., 1978, Optimal Contracts and Competitive Markets with Costly State
Verification, Journal of Economic Theory, 21, 265-293.

27

Table 1
Institutional Ownership Summary Statistics
The sample consists of all firms that appear on the CRSP tapes between the years 1980 and 1996, except for financial companies and utility companies (SIC codes 6xxx, 48xx and 49xx). Size quintiles
are calculated annually, based on end-of-year market capitalization.

Full Sample

1980-1985

Median

Mean
(Equally
weighted)

Mean
(value
weighted)

0.50

6.11

4.77

1986-1990

Median

Mean
(Equally
weighted)

Mean
(value
weighted)

7.09

0.00

2.99

10.23

13.54

0.84

14.06

19.04

23.29

27.30

30.58

Highest

47.66

All

13.76

Size
Quintile
Lowest

1991-1996

Median

Mean
(Equally
weighted)

Mean
(value
weighted)

Median

Mean
(Equally
weighted)

Mean (value
weighted)

3.17

0.65

4.71

5.18

2.04

9.76

9.23

4.48

5.11

4.31

8.55

9.14

10.72

16.25

17.96

5.94

10.64

12.18

13.56

17.17

18.07

24.60

27.40

28.96

35.78

16.74

19.86

22.47

27.27

29.20

30.88

39.60

40.53

42.43

45.62

50.21

37.95

36.58

40.91

47.05

44.18

47.97

57.78

54.24

54.63

22.32

48.51

6.28

14.91

38.79

13.02

20.77

46.44

22.77

29.64

53.00

28

Table 2
Institutional Ownership and Dividend Payment
The sample consists of all firms that appear on the CRSP tapes between the years 1980 and 1996, except financial firms and utilities
(SIC code 6xxx,48xx,49xx). Size quintiles are calculated annually, based on market capitalization. In panel B, firms that pay dividend
are divided annually into three equal groups based on their dividend yield. Groups are then aggregated across years. Statistics in panel
A are for differences in means, medians, and value-weighted means between the dividend-paying and non-dividend paying groups.
The last column is a t-test for differences in mean firm-size between the two groups. Statistics in panel B are for differences in means,
medians, and value-weighted means between the high-dividend and the low-dividend groups. The last column is a t-test for
differences in mean firm-size between the low dividend and the high dividend groups.

Panel A: Ownership in Dividend Paying and non Dividend Paying Firms

Total Ownership %
1980-1996
Size

Non Paying

Quintile

Median

Lowest
2

Paying

T-test

T-test

Wilcoxon

T-test

Mean

(equally
weighted)

(value
weighted)

Rank Test

Size differences

Mean

Median

0.57

(5.60)

11754

2.74

(6.84)

418

0.82

1.43

7.80 **

0.35

4.91

(10.22)

12192

8.88

(12.57)

1535

5.56 **

4.19 **

11.15 **

0.56

14.63

(19.99)

10960

18.15

(21.53)

2999

2.98 **

2.99 **

8.82 **

3.84 **

28.57

(32.11)

8678

31.64

(33.33)

5351

3.04 **

1.95

7.17 **

1.41

Highest

43.86

(42.67)

4678

50.23

(48.66)

9522

14.97 **

20.74 **

13.32 **

1.28

Total

9.05

(18.39)

48262

37.04

(36.74)

19825

90.15 **

60.60 **

102.77 **

Paying

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size differences

-0.42

-0.03

1980-1985
Size

Non Paying

Quintile

Median

Mean

Median

Mean

Lowest

0.00

(3.81)

4101

0.59

(3.50)

227

1.19

(5.15)

3977

4.68

(8.10)

826

7.62 **

7.13

(12.71)

3363

11.17

(14.43)

1539

16.31

(20.48)

2450

23.97

(26.12)

Highest

22.25

(27.41)

1206

43.28

Total

2.99

(10.74)

15097

27.28

4.35 **

11.52 **

9.12 **

11.82 **

6.86 **

2.38 *

2.16 *

10.72 **

6.77 **

2472

10.31 **

9.32 **

15.22 **

7.38 **

(42.49)

3750

16.79 **

28.08 **

22.70 **

3.34 **

(28.77)

8814

54.32 **

65.13 **

77.26 **

Paying

T-test

T-test

Wilcoxon

T-test

(value
weighted)

Rank Test

Size differences

1986 - 1990
Size

Non Paying

Quintile

Median

Mean

Median

Mean

(equally
weighted)

Lowest

0.68

(4.62)

3639

4.88

(11.12)

39

1.69

2.21 *

5.33 **

6.17 **

4.38

(8.38)

3917

11.38

(13.84)

288

6.96 **

7.51 **

9.73 **

3.87 **

13.92

(17.55)

3581

22.20

(24.24)

693

10.62 **

10.50 **

12.31 **

6.16 **

28.09

(30.80)

2820

33.66

(34.26)

1466

5.56 **

4.83 **

7.30 **

9.45 **

Highest

39.25

(39.56)

1388

51.64

(49.34)

2963

12.72 **

15.04 **

12.84 **

14.27 **

Total

8.55

(16.57)

15345

41.05

(39.94)

5449

69.33 **

44.48 **

67.92 **

Paying

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size differences

1991 - 1996
Size

Non Paying

Quintile

Median

Mean

Median

Mean

Lowest

2.22

(8.31)

4014

7.61

(10.73)

152

2.53 **

1.75

7.15 **

5.59 **

10.48

(16.58)

4298

17.37

(20.46)

421

4.76 **

3.28 **

7.90 **

3.52 **

24.63

(28.26)

4016

33.06

(33.32)

767

6.84 **

5.97 **

8.19 **

0.08

40.33

(41.55)

3408

45.60

(44.97)

1413

4.97 **

4.46 **

6.23 **

4.38 **

2084
(53.58)
(56.19)
Highest
57.01
58.78
17820
(26.45)
(46.24)
Total
18.29
48.38
* and ** denote statistical significance at the 5% and 1% levels respectively

2809

3.96 **
54.35 **

5.56 **
24.37 **

2.32 *
53.05 **

15.08 **

5562

Table 2
Institutional Ownership and Dividend Payment (Cont.)

Panel B: Ownership Across Dividend Paying Firms

Total Ownership %
Size

Paying-Low Yield

1980-1996
Paying-High Yield

Paying-Med. Yield

Quintile
Lowest
2

Median

Mean

Median

Mean

Median

Mean

2.59
7.55

(7.31)

48

(6.99)

126

244

324

(12.67)

497

3.51
9.04

(6.67)

(12.88)

2.42
9.68

(12.35)

19.31

(23.20)

933

18.08

(21.35)

1003

16.96

30.81

(32.87)

1946

33.82

(35.13)

1757

30.45

Highest
Total

47.90
33.65

(47.19)

3294

(50.96)

3225

(37.52)

6545

52.59
30.26

(38.54)

6608

49.57
20.56

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size differences

714

0.38
0.56

0.61
1.39

0.59
0.60

-0.87
0.23

(20.22)

1063

-3.84

-6.08

-3.27

-1.59

(31.96)

1648

-1.41

-2.38

-0.92

-2.40

(47.80)

3003

(34.19)

6672

1.28
-8.61

0.56
-0.21

2.05
-8.33

6.05 **

1980-1985
Size

Paying-Low Yield

Paying-Med. Yield

Paying-High Yield

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Quintile

Median

Mean

Median

Mean

Median

Mean

Rank Test

Size differences

Lowest

0.00

(2.14)

31

0.29

(3.00)

80

1.03

(4.20)

116

1.73

2.16

1.84

-1.32

4.99

(8.71)

198

4.13

(7.91)

281

4.97

(7.90)

347

-0.90

-0.71

-0.04

-2.39

11.27

(14.63)

464

11.51

(14.35)

553

10.67

(14.32)

522

-0.38

-0.20

-0.41

0.27

23.14

(25.29)

944

25.99

(27.62)

825

23.60

(25.48)

703

0.23

0.47

0.53

-2.36

Highest

40.51

(39.91)

1268

44.94

(44.20)

1181

44.58

(43.43)

1301

5.35

1.33

5.19 **

Total

26.79

(28.59)

2905

27.79

(29.24)

2920

27.19

(28.48)

2989

-0.22

3.83 **

0.64

Size

Paying-Low Yield

1986 - 1990
Paying-High Yield

Paying-Med. Yield

**

7.28 **

T-test

T-test

Wilcoxon

T-test

(value
weighted)

Quintile

Median

Mean

Median

Mean

Median

Mean

(equally
weighted)

Rank Test

Size differences

Lowest

16.94

(17.62)

6.32

(9.18)

12

2.99

(11.00)

23

-0.43

-0.75

-2.35

-1.08

10.43

(16.25)

49

11.95

(13.47)

89

11.22

(13.27)

150

-1.29

-1.17

0.47

-0.66

21.50

(25.09)

217

22.68

(24.34)

209

23.18

(23.47)

267

-1.10

-0.90

0.33

-3.05

31.51

(33.35)

481

37.03

(37.70)

484

31.81

(31.82)

501

-1.31

-1.17

0.42

-2.86

Highest

49.08

(47.86)

1046

54.13

(51.76)

1028

50.49

(48.28)

889

0.50

0.17

1.46

Total

40.76

(40.30)

1797

44.22

(42.73)

1822

37.98

(36.82)

1830

-4.99

0.53

-4.59

Size

Paying-Low Yield

1991 - 1996
Paying-High Yield

Paying-Med. Yield

5.85 **

T-Test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Quintile

Median

Mean

Median

Mean

Median

Mean

Rank Test

Size differences

Lowest

9.23

(16.48)

13

11.95

(15.60)

34

5.18

(8.45)

105

-2.87

-2.02

-2.38

-2.67

16.23

(21.45)

77

18.41

(22.66)

127

17.37

(18.82)

217

-1.29

-2.04

0.44

-1.77

36.39

(37.36)

252

33.41

(34.82)

241

30.01

(28.29)

274

-5.73

-6.32

-5.09

-1.56

47.38

(46.15)

521

46.28

(46.18)

448

42.64

(42.37)

444

-2.91

-3.11

-2.80

-2.12

Highest
Total

58.09
49.84

(55.88)

980

(58.02)

1016

813

1843

(49.00)

1866

58.49
42.63

(54.26)

(48.88)

59.59
51.29

(40.82)

1853

-1.71
-10.76

1.07
1.25

0.75
-9.66

* and ** denote statistical significance at the 5% and 1% levels respectively

2.69 **

Table 3
Effect of Dividend Payment on Institutional Holdings
Sample consists of all CRSP firm-years between 1980 and 1996, with balance-sheet information on the Compustat tapes. Financial
firms (SIC code 6xxx), and utilities (SIC codes 48xx and 49xx), are excluded. Log(value(t)) is the natural log of
market capitalization at the end of year t. Market to Book is the market value of equity plus book value of
preferred dividend plus book value of total liabilities minus book value of deferred taxes, divided by book value
of assets, all calculated at the end of fiscal year t. Beta for the NYSE/AMEX traded firms is calculated based on
the Scholes Williams (1977) method, using daily returns over the number of trading days during year t, and the
NYSE/AMEX value-weighted market index. Beta for Nasdaq firms is calculated based on the average daily bidask spread using the Nasdaq Value-Weighted Market Index. Dividend Yield is the last quarterly dividend in year t
multiplied by four and divided by the price at the end of year t, adjusted for stock splits between the
announcement day and the end-of-year. Sectors are the one-digit SIC code. The Fama-MacBeth regression is
based on annual regressions from 1980 to 1996

Dependent variable: Institutional holdings (%) at the end of year t+1.

Variable
All Firm-Years
Fma-McBt
Largest-Size Quintile
Intercept
-9.55 **
-4.25 **
17.97 **
-(48.09)
-(7.00)
(15.86)
Log (value(t))
7.23 **
7.02 **
2.35 **
(163.14)
(30.21)
(14.57)
Market to Book(t)
-0.90 **
-1.01 **
-1.03 **
-(33.78)
-(9.86)
-(9.77)
Beta
1.76 **
1.76 **
5.56 **
(15.05)
(3.13)
(16.71)
Dividend Yield (t)
Dummy Pay/no Pay dividend (t)
Sector 0 - Agriculture
Sector 1 - Mining and Construction
Sector2 - Manufacturing
Sector 4 - Transportation
Sector 5 - Retail Sales
Sector 7 - General Services
Sector 8 - Health Services
Dummy 1986-1990
Dummy 1991-1996
Observations
2

-39.40
-(14.61)
5.48
(26.63)
-4.97
-(5.24)
-4.81
-(19.80)
-3.03
-(15.39)
0.74
(1.72)
-0.62
-(2.86)
-0.23
-(0.96)
-0.75
-(2.23)
6.11
(35.66)
9.01
(51.31)
56721
52.08%

**
**
**
**
**

**

*
**
**

-61.88
-(4.80)
6.67
(11.38)
-4.56
-(6.35)
-4.39
-(7.12)
-3.02
-(9.05)
1.11

**
**
**
**
**

(2.06)
-1.00 *
-(2.83)
-0.26
-(0.95)
-0.94 **
-(3.31)

-57.38
-(6.82)
9.28
(19.95)
-20.89
-(8.54)
-13.49
-(22.26)
-5.11
-(11.77)
-2.11

**
**
**
**
**
*

-(2.39)
-5.13 **
-(9.39)
0.27
(0.42)
0.99
(0.97)
7.41 **
(17.80)
14.91 **
(33.87)
12323
21.84%

31

Table 4
Effect of Changes in Dividend on Institutional Holdings
Sample consists of all CRSP firm-years between 1981 and 1996, with balance-sheet information on the Compustat tapes. A firm-year
is included in the sample if the firm paid dividend in the previous year and pays dividend in the current year. Financial firms (SIC
code 6xxx), and utilities (SIC codes 48xx and 49xx), are excluded. Log(value(t)) is the natural log of market capitalization at the end
of year t. Market to Book is the market value of equity plus book value of preferred dividend plus book value of total liabilities minus
book value of deferred taxes, divided by book value of assets, all calculated at the end of fiscal year t. Beta for the NYSE/AMEX
traded firms is calculated based on the Scholes Williams (1977) method, using daily returns over the number of trading days during
year t, and the NYSE/AMEX value-weighted market index. Beta for Nasdaq firms is calculated based on the average daily bid-ask
spread using the Nasdaq Value-Weighted Market Index. Dividend Yield is the last quarterly dividend in year t multiplied by four and
divided by the price at the end of year t, adjusted for stock splits between the announcement day and the end-of-year. 1% dividendyield outliers were taken out of the sample. Sectors are the one-digit SIC code. The Fama-MacBeth regression is based on annual
regressions from 1981 to 1996. The regression in panel A is repeated for every size quintile and market-to-book quintile. The results
are presented in panel B.

Panel A: Regression across all firm-years

Dependent variable: Institutional Holdings (t+1) - Institutional Holdings(t)

Variable
Intercept
Log (Value(t)/Value(t-1))
Market to Book(t)-Market to Book (t-1)
Beta(t)-Beta(t-1)
(Div(t) - Div(t-1))/P(t-1)
Log (Value(t))
Beta
Market to Book(t)
Sector 0 - Agriculture
Sector 1 - Mining and Construction
Sector2 - Manufacturing
Sector 4 - Transportation
Sector 5 - Retail Sales
Sector 7 - General Services
Sector 8 - Health Services
Observations
R2
F

All Firm-Years Fma-McBt

3.14 **
(14.07)
1.16 **
(5.47)
0.08

2.38 **
(3.99)
1.44 **
(4.95)
-0.01

Largest Size-Quintile
5.57 **
(10.38)
-0.21
-(0.64)
0.41

(0.47)
-0.39 *
-(2.42)
-11.50

-(0.04)
-0.13
-(0.55)
-22.51 *

(1.90)
-0.09
-(0.38)
-29.48 **

-(0.89)
-0.24 **
-(5.87)
0.23
(1.43)
-0.33 **
-(3.93)

-(2.17)
-0.11
-(1.40)
-0.17
-(0.48)
-0.15
-(1.14)

-(3.61)
-0.40 **
-(5.52)
-0.73 **
-(3.12)
-0.35 **
-(3.54)

-0.09
-(0.10)
0.15
(0.57)
-0.02
-(0.13)
-0.43
-(1.19)
-0.26
-(1.38)
-0.34
-(1.31)
-0.51
-(1.15)
15157

0.04
(0.03)
0.13
(0.22)
-0.10
-(0.65)
-0.34
-(1.02)
-0.28
-(1.10)
-0.29
-(1.04)
-0.25
-(0.63)

0.10
(0.09)
-0.02
-(0.05)
-0.09
-(0.43)
-0.60
-(1.29)
-0.12
-(0.45)
-0.31
-(0.80)
-0.31
-(0.48)
7854

0.01
12.14
(0.00)
** and * denote statistical significance at the 0.01 and 0.05 levels respectively.

0.01
7.04
(0.00)

36

Table 4
Effect of Changes in Dividend on Institutional Holdings (Cont.)

Panel B: Regressions across Size and Market to Book Quintiles

Size Quintile
Smallest

Largest

Coefficient of (Div(t)-Div(t-1))/P(t-1)

28.04

-16.30

-11.76

0.79

-48.57

t-stat

(0.52)

-(0.43)

-(0.39)

(0.03)

-(2.48)

Market to Book Quintile

Coefficient of (Div(t)-Div(t-1))/P(t-1)
t-stat

Lowest

Highest

-22.08

-52.23

-(0.87)

-(1.81)

-14.66

-7.57

-18.19

-(0.53)

-(0.25)

-(0.49)

37

Table 5
Effect of Changes in Institutional Holdings on Dividend
Sample consists of all CRSP firm-years between 1981 and 1995, with balance-sheet information on the Compustat tapes. A firm-year
is included in the sample if the firm paid dividend in the current year and in the next year. Financial firms (SIC code 6xxx), and
utilities (SIC codes 48xx and 49xx), are excluded. Log(value(t)) is the natural log of market capitalization at the end of year t. Market
to Book is the market value of equity plus book value of preferred dividend plus book value of total liabilities minus book value of
deferred taxes, divided by book value of assets, all calculated at the end of fiscal year t. Beta for the NYSE/AMEX traded firms is
calculated based on the Scholes Williams (1977) method, using daily returns over the number of trading days during year t, and the
NYSE/AMEX value-weighted market index. Beta for Nasdaq firms is calculated based on the average daily bid-ask spread using the
Nasdaq Value-Weighted Market Index. Dividend Yield is the last quarterly dividend in year t multiplied by four and divided by the
price at the end of year t, adjusted for stock splits between the announcement day and the end-of-year. (Div(t+1-Div(t))/Div(t) is the
last dividend payment at the end of year t+1 (adjusted for stock splits between the end of year t+1 and the end of year t), minus the
last dividend payment at the end of year t, divided by the last dividend payment at the end of year t. Sectors are the one-digit SIC
code. The Fama-MacBeth regression is based on annual regressions from 1981 to 1996.

Panel A: Regression across all firm-years

Dependent variable is (Div(t+1) - Div(t))/P(t)
Variable

All Firm-Years (x10 )

Intercept
Log (Value(t)/Value(t-1))
Market to Book(t)-Market to Book (t-1)
Beta(t)-Beta(t-1)
Inst.Holdings(t)-Inst. Holdings(t-1)
Log (Value(t))
Beta
Market to Book(t)
Sector 0 - Agriculture
Sector 1 - Mining and Construction
Sector2 - Manufacturing
Sector 4 - Transportation
Sector 5 - Retail Sales
Sector 7 - General Services
Sector 8 - Health Services
Observations
2

R
F

Fma-Mcbt(x10 )

0.43
(0.31)

Largest Size-Quintile

-2.66
-(1.12)

19.00 **
(13.91)
-2.05 *
-(2.02)
0.99
(1.02)

3.09
(1.75)

21.41 **
(11.68)
-1.55
-(1.17)
-0.68
-(0.61)

1.95 **
(10.74)
1.20 *
-(2.47)
1.34 *
(2.40)

-0.04

-0.06

0.07

-(0.81)

-(1.70)

-(0.64)

0.61 *
(2.48)
1.41
(1.44)
4.33
(8.66)
1.18
(0.21)
-8.25
-(5.00)
6.39
(6.79)
-0.44
-(0.20)
0.01
(0.01)
1.40
(0.89)
5.47
(2.04)
15027
0.04
39.83
(0.00)

**

**
**

1.12 **
(2.99)
0.20
(0.11)
5.28
(8.49)
0.71
(0.12)
-7.56
-(4.72)
5.41
(3.86)
-0.98
-(0.44)
-0.44
-(0.23)
1.43
(0.74)
4.65
(2.48)

**

**
**

0.42
(1.17)
1.33
-(0.73)
0.55 **
(6.19)
6.59
(0.38)
1.94 **
-(6.31)
1.18 **
(6.26)
2.64
-(1.21)
1.56
(0.66)
2.19
(1.70)
3.63
(1.08)
7660
0.05
27.28
(0.00)

** and * denote statistical significance at the 0.01 and 0.05 levels respectively.

38

Table 5
Effect of Changes in Institutional Holdings on Dividend (cont.)
Panel B: Regressions across Size and Market to Book Quintiles

(Inst.Hldg(t)-Inst. Hldg(t-1)) (x10 )

t-stat

Smallest

Size Quintile
3

0.003

-0.222

-0.028

-0.030

-0.045

(0.01)

-(0.61)

-(0.17)

-(0.30)

-(0.64)

Lowest
4

(Inst.Hldg(t)-Inst. Hldg(t-1)) (x10 )

t-stat

Largest

Market to Book Quintile

2
3
4

Highest

0.08

-0.15

-0.14

-0.07

0.20

(0.48)

-(1.34)

-(1.55)

-(0.62)

(1.30)

39

Table 6
Institutional Ownership of Repurchasing and non repurchasing firms
Sample consists of all CRSP firm-years between 1980 and 1996, with balance-sheet information on the Compustat tapes. Financial
firms (SIC code 6xxx), and utilities (SIC codes 48xx and 49xx), are excluded. Size quintiles are calculated annually based on the endof-year market capitalization of all CRSP firms. Repurchase Yield is the dollar value of stock and preferred stock as reported in the
statement of cash flow at the end of the fiscal year, divided by equity capitalization. Every year, all repurchasing firms are divided into
three equal groups based on their repurchase yield (Low Yield, Med Yield and High Yield). Groups are then aggregated across years.
Statistics in panel A are for differences in means, medians, and value-weighted means between the repurchasing and non-repurchasing
groups. The last column is a t-test for differences in mean firm-size between the two groups. Statistics in panel B are for differences in
means, medians, and value-weighted means between the high repurchase-yield and the low repurchase-yield groups. The last column
is a t-test for differences in mean firm-size between the low repurchase and the high repurchase groups.

40

Panel A: Total Ownership %

1980-1996
Size

Non Repurchasing

Repurchasing

Quintile

Median

Mean

Median

0.53

(5.44)

10148

4.70

(9.36)

10839

3
4

14.50
29.17

(18.34)

10638

(29.28)

10197

5
Total

47.61
12.94

(41.42)

9097

(20.17)

50919

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

Mean

1.12

(4.60)

2024

-1.36

5.86

**

7.59

(11.73)

2886

4.69

**

4.04

**

10.94

**

-0.64

17.77
31.99

(22.35)

3320

(35.61)

3832

4.68
3.76

**
**

5.39
4.37

**
**

10.55
6.24

**
**

-1.29
0.31

50.51
24.40

(50.32)

5103
17165

8.45
30.92

**
**

11.32
32.29

**
**

8.31
40.33

**
**

15.07 **

(29.75)

-0.51

3.73 **

1980-1985
Size

Non Repurchasing

Repurchasing

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

Quintile

Median

Mean

Median

Mean

0.00

(4.01)

3555

0.00

(2.78)

773

-0.79

1.52

(5.42)

3792

2.90

(6.52)

1010

3.38

7.83

(13.14)

3755

10.32

(13.60)

4
5
Total

20.61
40.22
7.64

(23.45)

3714

(22.89)

(38.47)

3556

(39.69)

1400

(16.77)

18372

20.54
40.78
13.31

(19.42)

5538

Size
Quintile
1
2
3
4
5

Median

Mean

Median

0.60
4.00
13.75
28.67
47.39

(4.87)

3078

(8.19)

3263

(17.58)

3174

(31.20)

2895

(44.16)

2431

1.26
7.64
18.66
33.13
50.66

Total

11.08

(19.89)

14841

26.85

**

2.78 **

5.54

**

0.72

0.40

5.78

**

-0.13

-1.06
5.57
12.78

0.49
1.82
15.18

3.96

1147

0.43

1208

-0.88
1.78
7.63 **

Mean

**

**
**

0.09
2.21

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

1920

**
**
**
**

-0.13
5.81
7.34
3.30
7.62

**
**
**
**

5.67
9.34
9.75
5.38
6.26

**
**
**
**
**

5952

27.51

**

22.31

**

33.05

**

600
941

(21.66)

1100

(33.62)

1391

(48.82)
(29.69)

6.28 **
0.74
1.87
0.75
10.56 **

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

Quintile

Median

Mean

Median

Mean

2.19

(8.45)

3515

3.52

(8.12)

651

-0.37

10.38

(16.60)

3784

14.66

(18.22)

935

2.13

2.17

3
4
5
Total

25.22
40.83
58.49
21.96

(28.34)

3709

(31.61)

1073

(41.85)

3588

(44.60)

1233

(54.56)
(29.23)

3110
17706

29.61
44.51
57.96
36.62

(55.99)
(37.19)

1783
5675

4.53
3.41
2.21
20.06

**
**
*
**

4.87
4.08
0.22
8.25

**

-0.89
5.98
7.25
3.57
7.26

(3.81)
(10.75)

1991 - 1996
Repurchasing

Non Repurchasing

2.74

-0.40
**

1986 - 1990
Repurchasing

Non Repurchasing

Size

3.96

**

4.01 **

6.54

**

1.67

**
**

5.48
4.47
0.83
23.03

**
**

0.10

**

1.17
2.96 **
14.97 **

**

41

Table 6
Institutional Ownership of Repurchasing and non repurchasing firms (Cont.)

Panel B: Ownership Across Repurchasing Firms

1980-1996
Size

Rep.-Low Yield

Quintile
1

Median

Rep.-Med. Yield

Mean

Median

1.19

(4.50)

551

6.36

(10.42)

908

16.56

(21.07)

30.77

(33.15)

47.66

Total

23.91

Rep.-High Yield
Mean

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

Mean

Median

0.93

(3.93)

689

1.30

(5.79)

784

2.07

3.22

**

0.60

7.49

(11.45)

946

9.01

(13.05)

1028

4.12

**

4.21

**

4.21

**

-0.13

1090

17.02

(21.12)

1098

19.97

(24.03)

1131

3.92

**

3.64

**

4.22

**

-0.84

1427

30.38

(32.58)

1212

34.47

(35.72)

1193

3.28

**

2.82

**

3.38

**

0.28

(46.33)

1743

50.94

(49.19)

1805

52.39

(51.06)

1539

6.87

**

5.40

**

6.08

**

1.02

13.90

5719

24.16

12.56

5750

24.89

13.35

5675

1.83

9.71

**

1.30

1.93

1980-1985
Size

Rep.-Low Yield

Rep.-Med. Yield

Rep.-High Yield

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

Quintile
1

Median

Mean

Median

Mean

Median

Mean

0.00

(2.96)

203

0.00

(2.37)

258

0.00

(3.01)

312

0.08

0.96

0.17

-3.4

2.61

(6.27)

326

3.34

(7.15)

327

3.09

(6.14)

354

-0.20

-0.10

0.84

1.31

10.52

(13.17)

374

8.94

(12.73)

407

12.12

(15.02)

366

1.99

2.01

2.14

-0.41

19.91

(22.19)

457

20.33

(21.86)

387

22.07

(24.85)

364

2.41

2.00

2.47

-1.23

5
Total

38.48
23.91

(37.53)

492

(39.80)

483

421

1862

(19.42)

1817

2.88
6.35

**
**

3.05
-0.73

**

(19.23)

3.64
-0.18

**

1852

41.86
28.50

(41.87)

(19.53)

41.66
27.85

2.82 **

1986 - 1990
Size

Rep.-Low Yield

Rep.-Med. Yield

Rep.-High Yield

Quintile

Median

Mean

Median

Mean

Median

1.30

(3.68)

176

0.93

(2.97)

208

2
3

5.37
15.91

(9.22)

307

(9.97)

295

(19.38)

380

7.71
19.36

(21.70)

351

4
5
Total

31.96
47.33
24.43

(33.19)

481

(31.90)

444

(45.65)

632

(49.50)

692

(28.17)

1976

(29.95)

1990

Size

Rep.-Low
Yield

Quintile

Median

31.81
50.96
36.25

Mean

Median

Mean

T-test
(value
weighted)

Wilcoxon

T-test
Size
Difference

1.66

(4.72)

216

1.43

9.54
20.64

(12.85)

338

(23.97)

369

3.96
4.24

**
**

4.05
4.04

**
**

5.24
4.65

**
**

-1.76
-1.5

35.43
53.84
36.49

(35.69)

466

(51.21)

586
1975

*
**
**

1.49
3.66
6.36

**
**

2.51
5.07
3.94

**
**
**

-0.18
1.02

(30.81)

2.13
5.28
3.72

1991 - 1996
Rep.-High
Yield

Rep.-Med.
Yield

T-test
(equally
weighted)

Mean

Median

Mean

Rank Test

1.53

1.14

-1.21

T-test

T-test

Wilcoxon

T-test

(equally
weighted)

(value
weighted)

Rank Test

Size
Difference

3.54

(7.15)

172

3.54

(6.62)

223

3.48

(10.07)

256

1.58

14.38

(16.68)

275

13.25

(17.14)

324

16.45

(20.53)

336

2.78

29.87

(31.78)

336

29.13

(30.58)

340

30.41

(32.41)

396

0.41

4
5

43.14
56.90

(43.34)

489

(44.25)

381

363

619

(56.05)

630

45.97
59.32

(46.67)

(54.03)

44.76
57.74

(58.17)

532

2.37
3.55

Total

37.06

(37.62)

1891

(36.67)

1898

36.49

(37.28)

1883

-0.41

**

2.28

0.36

-2.22

2.58

**

1.90

-0.56

1.13
*
**

0.25

2.23
4.36

*
**

2.15
2.89

7.37

**

-0.98

-1.52
*
**

0.69
0.12

Table 7
Effect of Repurchasing on Institutional Holdings
Sample consists of all CRSP firm-years between 1986 and 1996, with balance-sheet information on the Compustat tapes. Financial
firms (SIC code 6xxx), and utilities (SIC codes 48xx and 49xx), are excluded. Log(value(t)) is the natural log of
market capitalization at the end of year t. Market to Book is the market value of equity plus book value of
preferred dividend plus book value of total liabilities minus book value of deferred taxes, divided by book value
of assets, all calculated at the end of fiscal year t. Beta for the NYSE/AMEX traded firms is calculated based on
the Scholes Williams (1977) method, using daily returns over the number of trading days during year t, and the
NYSE/AMEX value-weighted market index. Beta for Nasdaq firms is calculated based on the average daily bidask spread using the Nasdaq Value-Weighted Market Index. Repurchase Yield is the dollar value of stock and
preferred stock as reported in the statement of cash flow at the end of the fiscal year, divided by equity
capitalization. The coefficients in the Fama-MacBeth regression are the averages of the coefficients of the annual
regressions from 1980 to 1996.

Dependent variable: Institutional holdings at the end of year t+1.

Variable
All Firm-Years Fma-Mcbt
Intercept
Log (value(t))
Market to Book(t)
Beta

-7.80 **
-(27.32)
7.94 **
(178.18)
1.94 **

-4.23 **
-(6.52)
7.91 **
(36.40)
2.05 **

25.76 **
(18.71)
2.50 **
(13.62)
5.85 **

(15.07)
-0.99 **

(5.28)
-1.23 **

(15.52)
-1.40 **

-(32.54)
Repurchase Yield (t)
Sector 0 - Agriculture
Sector 1 - Mining and Construction
Sector2 - Manufacturing
Sector 4 - Transportation
Sector 5 - Retail Sales
Sector 7 - General Services
Sector 8 - Health Services
Dummy 1986-1990
Dummy 1991-1996
Observations

Largest Size-Quintile

6.97
(5.93)
-5.61
-(4.94)
-4.21
-(13.99)
-3.20
-(13.25)
0.27
(0.53)
-0.57
-(2.18)
-0.82
-(2.94)
-1.16
-(3.03)
2.69
(10.84)
5.17
(20.84)
42616

-(9.84)
**
**
**
**

**
**
**
**

R2
50.06
** and * denote statistical significance at the 0.01 and 0.05 level respectively

8.43
(4.45)
-5.55
-(6.30)
-4.28
-(5.73)
-3.06

-(11.53)
**
**
**
**

-(11.93)
0.43
(0.69)
-0.72
-(1.58)
-0.73
-(2.02)
-1.29 **
-(3.45)

12.00
(4.02)
-23.25
-(8.40)
-13.13
-(17.30)
-4.89
-(9.35)
-3.36
-(3.19)
-5.24
-(8.18)
-1.19
-(1.57)
-0.20
-(0.17)
4.16
(6.95)
11.46
(18.78)
9190

**
**
**
**
**
**

**
**

16.14

44

Table 8
Effect of Changes in Repurchases on Institutional Holdings
Sample consists of all CRSP firm-years between 1986 and 1996, with balance-sheet information on the Compustat tapes. A firm-year
is included in the sample if the firm repurchased shares either in the current year or in the previous year, and if repurchase is less than
50% of market capitalization in the beginning of the year. Financial firms (SIC code 6xxx), and utilities (SIC codes 48xx and 49xx),
are excluded. Log(value(t)) is the natural log of market capitalization at the end of year t. Market to Book is the market value of equity
plus book value of preferred dividend plus book value of total liabilities minus book value of deferred taxes, divided by book value of
assets, all calculated at the end of fiscal year t. Beta for the NYSE/AMEX traded firms is calculated based on the Scholes Williams
(1977) method, using daily returns over the number of trading days during year t, and the NYSE/AMEX value-weighted market index.
Beta for Nasdaq firms is calculated based on the average daily bid-ask spread using the Nasdaq Value-Weighted Market Index.
$Repurchase(t) is the dollar amount of stock and preferred stock as reported in the statement of cash flow at the end of fiscal year t.
Sectors are the one-digit SIC code. The coefficients in the Fama-MacBeth regression are the averages of the coefficients of the annual
regressions from 1980 to 1996. The regression in panel A is repeated for every size quintile and market-to-book quintile. The results
are presented in panel B.

Panel A: Regression across all firm-years

Dependent Variable: Change in institutional holdings (%)
Variable

All Firm-Years

Intercept

0.90 **

Fma-Mcbt
1.01 *

Largest Size Quintile

2.95 **

Beta(t)-Beta(t-1)

(4.01)
0.93 **
(5.58)
-0.09
-(1.18)
-0.01

(2.29)
1.30 **
(3.02)
-0.02
-(0.14)
-0.20

(3.76)
-1.33 **
-(3.22)
0.34
(1.46)
-0.45

($Repurchase(t)-$Repurchase(t-1))/Value(t-1)

-(0.05)
4.87 **

-(1.26)
5.12 *

-(1.45)
2.10

(3.63)

(2.06)

(0.87)

0.01
(0.31)

-0.03
-(0.73)

-0.21 *
-(2.07)

-0.03
-(0.13)
0.01
(0.15)
-0.03
-(0.03)
1.18 **
(2.78)
0.03
(0.23)
-0.57
-(1.24)
0.20
(0.57)
0.50
(1.71)
0.75
(1.38)

-0.32
-(0.99)
-0.19
-(1.63)
4.71
(1.71)
0.98
(1.91)
0.38
(1.23)
-0.68
-(1.01)
0.41
(1.01)
0.84
(1.72)
0.95
(1.19)
4051
0.01
3.19
(0.00)

Log (Value(t)/Value(t-1))
Market to Book(t)-Market to Book (t-1)

Log(Value(t))
Beta
Market to Book(t)
Sector 0 - Agriculture
Sector 1 - Mining and Construction
Sector2 - Manufacturing
Sector 4 - Transportation
Sector 5 - Retail Sales
Sector 7 - General Services
Sector 8 - Health Services
Number of Observations
R squared
F value

-0.23
-(1.41)
0.01
(0.23)
0.88
(0.61)
1.13 **
(3.86)
0.08
(0.38)
-0.43
-(0.94)
0.34
(1.42)
0.56 *
(2.06)
0.71
(1.86)
12450
0.01
9.15
(0.00)

45

Table 8
Effect of Changes in Repurchases on Institutional Holdings (Cont.)
Panel B: Regressions across Size and Market to Book Quintiles

Size Quintile
Coefficient of ($Rep(t)-$Rep(t-1))/Value(t-1)

1
3.28

2
6.61

3
1.09

4
8.96

5
2.10

t-stat

(0.72)

(2.77)

(0.35)

(2.79)

(0.87)

1
Coefficient of ($Rep(t)-$Rep(t-1))/Value(t-1)
t-stat

Market to Book Quintile

2
3
4

6.40

0.02

7.65

8.49

-6.27

(3.04)

(0.01)

(2.69)

(2.22)

-(1.29)

46

Table 9
Effect of Changes in Institutional Holdings on Changes in Repurchases
Sample consists of all CRSP firm-years between 1986 and 1996, with balance-sheet information on the Compustat tapes. A firm-year
is included in the sample if the firm repurchased shares either in the current year or in the previous year, and if
repurchase is less than 50% of market capitalization in the beginning of the year. Financial firms (SIC code 6xxx),
and utilities (SIC codes 48xx and 49xx), are excluded. Log(value(t)) is the natural log of market capitalization at
the end of year t. Market to Book is the market value of equity plus book value of preferred dividend plus book
value of total liabilities minus book value of deferred taxes, divided by book value of assets, all calculated at the
end of fiscal year t. Beta for the NYSE/AMEX traded firms is calculated based on the Scholes Williams (1977)
method, using daily returns over the number of trading days during year t, and the NYSE/AMEX value-weighted
market index. Beta for Nasdaq firms is calculated based on the average daily bid-ask spread using the Nasdaq
Value-Weighted Market Index. $Repurchase(t) is the dollar amount of stock and preferred stock as reported in the
statement of cash flow at the end of fiscal year t. Sectors are the one-digit SIC code. The coefficients in the FamaMacBeth regression are the averages of the coefficients of the annual
regressions from 1980 to 1996.

Panel A: Regression across all firm-years

Dependent Variable: ( Rep. (t+1)-Rep(t) ) /V(t)
Variable

All Firm Years (x10 ) Fma-Mcbt (x10 )

Largest Firm-Size (x10 )

Intercept

-40.90 **
-(2.79)

-39.14
-(1.63)

Log (Value(t)/Value(t-1))

128.20 **
(11.46)
-19.40 **
-(3.91)

120.17 **
(6.44)
-29.57 **
-(3.04)

212.90
(8.27)
-36.70
-(2.91)

-23.10 *
-(2.44)
-0.79
-(1.35)

-17.15
-(1.46)
-0.64
-(0.60)

6.76
(0.36)
-2.39
-(2.41)

3.50
(1.30)
12.80

1.08
(0.21)
18.33

-1.62
-(0.26)
17.90

(1.19)
5.46
(1.46)
47.90
(0.49)
13.40
(0.70)
-1.89
-(0.14)
1.64
(0.06)
-10.10
-(0.64)
13.00
(0.74)
5.59
(0.22)
12368
0.01
11.65
(0.00)

(1.67)
8.58
(1.10)
23.61
(0.21)
11.97
(0.60)
3.29
(0.17)
-4.62
-(0.16)
-10.72
-(0.61)
8.93
(0.40)
0.35
(0.01)

(0.91)
-5.92
-(0.88)
27.10
(0.16)
-17.60
-(0.55)
-10.80
-(0.56)
-13.40
-(0.32)
-30.10
-(1.17)
8.87
(0.30)
-32.50
-(0.65)
4171
0.02
6.38
(0.00)

Market to Book(t)-Market to Book (t-1)

Beta(t)-Beta(t-1)
Instit. Holdings (t) - Instit. Holdings (t-1)
Log(Value(t))
Beta
Market to Book(t)
Sector 0 - Agriculture
Sector 1 - Mining and Construction
Sector2 - Manufacturing
Sector 4 - Transportation
Sector 5 - Retail Sales
Sector 7 - General Services
Sector 8 - Health Services
Number of Observations
R squared
F value

13.10
(0.27)

47

Table 9
Effect of Changes in Institutional Holdings on Changes in Repurchases (Cont.)
Panel B: Regressions across Size and Market to Book Quintiles

Size Quintile
Smallest
4

(InstHldg(t)-InstHldg(t-1)) (x10 )
t-stat

(InstHldg(t)-InstHldg(t-1)) (x10 )
t-stat

Largest

-2.93

0.41

3.35

-1.31

-2.39

-(1.45)

(0.20)

(2.35)

-(1.29)

-(2.41)

Lowest
4

Market to Book Quintile

2
3
4

Highest

-4.46

1.68

-0.37

-1.10

-1.08

-(2.51)

(1.16)

-(0.29)

-(1.16)

-(1.07)

48

Table 10 Robustness Analysis - Dividends

Panel A presents the results of the regression in Table 3 using three different proxies for dividend payout. Panel B and C present the
results of the regressions in Table 4 and Table 5, using three different proxies for changes in dividend payout.
Only the coefficient of the dividend-change proxy is presented.

Panel A: Regression Results - Effect of Dividend Payment on Institutional Holdings

Dependent Variable: Inst.Hldg(t+1)
Independent Variable(Dividend Proxy)
Div(t)/EBITDA(t)
Div(t)/Net Income(t)
Div(t)/Book (t)

Whole Sample
-26.97
-(4.35)
-5.98
-(2.84)
-88.04
-(10.65)

Coefficient
Largest Size-Quintile
10.58
(1.03)
2.81
(0.80)
-14.05
-(1.02)

Panel B: Regression Results - Effect of Changes in Dividend on Institutional Holdings

Dependent Variable: Inst.Hldg(t+1)-Inst.Hldg(t)

Independent Variable
(Div(t)-Div(t-1))/EBITDA(t-1)
(Div(t)-Div(t-1))/Net Income(t-1)
(Div(t)-Div(t-1))/Book (t-1)

Coefficient of Independent Variable

Whole Sample
Largest Size-Quintile
-0.25
2.36
-(0.09)
(1.17)
0.64
-0.13
(0.51)
-(0.07)
-4.06
-36.18
-(0.27)
-(1.71)

Panel C: Regression Results - Effect of Changes in Institutional Holdings on Dividend

Dependent Variable
(Div(t)-Div(t-1))/EBITDA(t-1)
(Div(t)-Div(t-1))/Net Income(t-1)
(Div(t)-Div(t-1))/Book (t-1)

Coefficient of Independent Variable: Inst.Hldg(t)-Inst.Hldg(t-1)

Whole Sample
Largest Size-Quintile
-0.7108
0.7035
(0.00)
-(0.31)
-14.1
-23.2
(0.00)
-(0.21)
-0.0507
0.06
(0.00)
-(0.39)

49

Table 11 Robustness Analysis - Repurchase

Panel A presents the results of the regression in Table 7 using three different proxies for repurchase payout. Panel B and C present the
results of the regressions in Tables 8 and 9, using three different proxies for changes in repurchase payout. Only
the coefficient of the repurchase-change proxy is presented.

Panel A: Regression Results - Effect of Repurchase on Institutional Holdings

Dependent Variable: Inst.Hldg(t+1)

Independent Variable (Repurchase proxy)
Repurchase(t)/EBITDA(t-1)
Repurchase(t)/Net Income(t-1)
Repurchase(t)/Book(t-1)

Whole Sample
4.91
(8.58)
2.04
(8.60)
25.57
(6.68)

Coefficient
Largest Size-Quintile
6.46
(5.51)
2.55
(5.25)
11.14
(1.19)

Panel B: Regression Results - Effect of Changes in Repurchase on Institutional Holdings

Dependent Variable: Inst.Hldg(t+1)-Inst.Hldg(t)

Independent Variable
(Repurchase(t)-Repurchase(t-1))/EBITDA(t-1)
(Repurchase(t)-Repurchase(t-1))/Net Income(t-1)
(Repurchase(t)-Repurchase(t-1))/Book(t-1)

Coefficient of Independent Variable

Whole Sample
Largest Size-Quintile
0.74
0.61
(3.84)
(1.76)
0.20
0.11
(2.66)
(0.84)
6.83
5.01
(4.14)
(1.82)

Panel C: Regression Results - Effect of Changes in Institutional Holdings on Repurchase

Dependent Variable
(Repurchase(t)-Repurchase(t-1))/EBITDA(t-1)
(Repurchase(t)-Repurchase(t-1))/Net Income(t-1)
(Repurchase(t)-Repurchase(t-1))/Book(t-1)

Coefficient of Independent Variable: Inst.Hldg(t)-Inst.Hldg(t-1)

Whole Sample
Largest Size-Quintile
-23.5
-72.8
-(2.31)
-(0.44)
191.6
493
(1.11)
(1.59)
-0.005
-1.26
-(0.01)
-(1.26)

50