Why do firms heap dividends? New evidence on the key role of firm characteristics

In this paper we explore how a cognitive bias known as heaping (or rounding to a higher level) influences the dividend policy of companies. Recent articles have shown that dividend size and the level of several information uncertainty variables help to explain changes in the likelihood of rounding dividends. Using data from the US that covers the 1990–2020 period, we verify that the previous literature overlooked the key role played by a group of variables denominated as firm characteristics. These variables have already proven to have a role in the decision of paying dividends or not. We also show that other attributes, such as being regular payers of dividends, impact the likelihood of rounding dividends. Finally, we verify that the propensity to heap dividends has been changing over time, even after controlling for changes in the dividend size, in the level of the information uncertainty variables and in the status of the firm characteristic variables, opening space to further research.