Annual Report 2002 - Cornell University
003 Selected Faculty Research

14 Attracting institutional investors

Roni Michaely and Yaniv Grinstein, Johnson Graduate School of Management, found that companies attract more institutional investors—pension funds, mutual funds, banks—by repurchasing shares of their own stock and paying out fewer dividends. This is contrary to the traditional wisdom on how companies capture the interest of new institutional investors (that is, more dividends attract more institutional investors). The study showed that although institutions prefer companies that pay dividends to those that do not, paying fewer dividends is better. The study suggests that pension funds and banks like dividends mainly because the practice appears more prudent, rather than because of large payouts. Institutional investor groups in the U.S. hold about 50 percent of equity in U.S. public firms. Firms that attract more institutional investors are more likely to thrive.

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