Clientele Effects
Despite the implications of the MM theory which states that investors are able to engage in ‘home-made’ dividends in order to attain their preferred cash flow, in a world with transaction costs and more importantly, taxes, the dividend policy of a firm is generally tailored to the interests of its investors (DeAngelo & DeAngelo, 2004).
Lintner (1965) states that once a firm initiates a dividend they are unlikely to reduce it many shareholders will likely sell their shares as they have come to expect and are mainly interested in owning said shares for the dividends they provide.
Value-orientated institutional and long-term retirement minded individual investors are investors partial towards receiving high levels of dividends regularly. Conversely, the growth-orientated institutional and short term trading-orientated individuals would prefer their income from holding shares to come from capital gains. As seen in Chart X, those investors with known motives would prefer to receive a high dividend rather than see their income arrive in the form of capital gains. (Elton & Gruber, 1970)
As for the chart area referring to unknown/unspecified, this area corresponds to investors in which there are not enough available information to determine which policy they would be partial to. It can be assumed that being the heirs to a multinational company the founding families would be fairly wealthy individuals as well as being long-term investors. On the basis of this it would be reasonable that as dividends are taxed higher than capital gains then these investors would be partial to capital gains rather than dividends. However, if these shares are to be kept in the family and the members are not interested in selling their shares in the family company, capital gains might not be an option and they would prefer to see a dividend.
As for employees and their families, not enough