Investor Income and Local Dividend Clienteles

I use a quasi-natural experiment setting and examine whether geographically-varying investors' income needs, proxied by local disasters, affect dividend payout. Firms located in areas severely impacted by local disasters are more likely to be dividend payers, initiate dividends, and have higher dividend yields. I introduce a new local dividend clientele effect induced by income needs. This effect is consistent with the notion that natural disasters generate local economic shocks, leading to a greater need for income among local investors within affected areas. These results are also stronger for firms primarily held by local investors in line with their greater influence on corporate policies.