Group diversity and optimal dividend policy

Abstract This paper extends the classical dividend distribution model by incorporating group diversity. The dividend strategies are determined by a group of shareholders with heterogeneous time preferences, rather than a single agent. First, we find that group diversity generates the overvaluation of the firm. Second, we demonstrate that the present bias resulting from group diversity leads to a more conservative dividend distribution policy. Finally, the existence of group diversity increases the endogenous risk aversion of the firm. JEL Classification: G35, G41