TY  - JOUR
AU  - Baker,Malcolm
AU  - Nagel,Stefan
AU  - Wurgler,Jeffrey
TI  - The Effect of Dividends on Consumption
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12288
PY  - 2006
Y2  - June 2006
UR  - http://www.nber.org/papers/w12288
L1  - http://www.nber.org/papers/w12288.pdf
N1  - Author contact info:
Malcolm Baker
Baker Library 261
Harvard Business School
Soldiers Field
Boston, MA  02163
Tel: 617/495-6566
Fax: 617/496-5271
E-Mail: mbaker@hbs.edu

Stefan Nagel
Stanford University
Graduate School of Business
518 Memorial Way
Stanford, CA  94305
Tel: 650/724-9762
Fax: 650/725-7979
E-Mail: nagel_stefan@gsb.stanford.edu

Jeffrey Wurgler
Stern School of Business, Suite 9-190
New York University
44 West 4th Street
New York, NY  10012
Tel: 212/998-0367
Fax: 212/995-4233
E-Mail: jwurgler@stern.nyu.edu
M2  - featured in NBER digest on 2006-06-12
AB  - Classical models predict that the division of stock returns into dividends and capital appreciation does not affect investor consumption patterns, while mental accounting and other economic frictions predict that investors have a higher propensity to consume from stock returns in the form of dividends. Using two micro data sets, we show that investors are indeed far more likely to consume from dividends than capital gains. In the Consumer Expenditure Survey, household consumption increases with dividend income, controlling for total wealth, total portfolio returns, and other sources of income. In a sample of household investment accounts data from a brokerage, net withdrawals from the accounts increase one-for-one with ordinary dividends of moderate size, controlling for total portfolio returns, and also increase with mutual fund and special dividends. We comment on several potential explanations for the results.
ER  -