We exploit demographic variation to identify the effect of dividend demand on firm payout policy. Retail investors tend to hold local stocks and older investors prefer dividend-paying stocks. Together, these tendencies generate geographically-varying demand for dividends. Firms headquartered in areas in which seniors constitute a large fraction of the population are more likely to pay dividends, initiate dividends, and have higher dividend yields. However, the fraction of seniors is uncorrelated with share repurchases, investment, or profitability, suggesting that geographic variation in dividend payout is not driven by some unmeasured firm characteristic affecting the ability or willingness to distribute cash to shareholders. We also provide indirect evidence as to why firm managers may cater to the demand for dividends from local seniors. Overall, these results suggest that the composition of a firmâ€™s investor base affects corporate policy choices.
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