Earned/Contributed Capital and the Lifecycle Theory

DeAngelo, DeAngelo, and Stulz (2007) find that the fraction of dividend-paying firms is high when retained earnings comprise a large portion of total equity and falls to near zero when most equity is contributed rather than earned. However, their results exacerbate the “disappearing dividend ” phenomenon. We first reexamine the lifecycle theory of dividends and find that earned/contributed also has explanatory power for repurchases and overall payouts. More importantly, the influence of earned/contributed capital on payouts varies according to when the firm went public. In particular, its predictive power declines in more recent IPO decades. We also reexamine the disappearing dividend puzzle. Using a prediction model that incorporates many factors known to influence payout policy and an estimation period after the enactment of the Rule 10b-18 Safe Harbor, we find little evidence that the conditional propensity to return cash to shareholders has declined over tim