This suggests that firms in

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firm-level characteristics such as profitability and debt. This suggests that firms in theseemergingmarketspayoutmoreindividendsthandosimilarfirmsintheUnited States. Finally, our taxonomy of countries based on the structure of their financial systems has some validity, but the overall explanatory power of the grouped model is less than the model with the individual country dummies. This indicates significant heterogeneity across countries, even after adjusting for differences in their financial systems. Our results suggest that the dividend policies of firms in emerging markets react to variables similar to those in the United States; however, their sensitivity to thesevariablesvariesacrosscountries.Thelargestpuzzleresultingfromouranalysis is that emerging market firms pay higher dividends than their U.S. counterparts, even after controlling for firm-specific characteristics and even though they operate under more severe financial constraints. As yet, we have no solution to this puzzle. References Bhatacharya, S., 1979, Imperfect information, dividend policy and the bird in the hand fallacy, Bell Journal of Economics 10, 259 70. Black, F., 1976, The dividend puzzle, Journal of Portfolio Management 2, 5 8. Booth, L., V. Aivazian, A. Demirguc-Kunt, and V. Maksimovic, 2001, Capital structure in developing countries, Journal of Finance 56, 87 131. Easterbrook, F., 1984, Two agency-cost explanation of dividends, American Economic Review 74, 650 59. Fama, E. and K. French, 1997, Dividends, debt, investment and earnings, Working paper, University of Chicago. Fazzari, S., R. G. Hubbard, and Petersen, 1988, Financing constraints and corporate investment, Brookings Papers for Economic Activity 1, 141 95. Glen, J., Y. Karmokolias, R. Miller, and S. Shah, 1994, Dividend policy and behavior in emerging markets, Discussion paper #2, International Finance Corporation. Gordon, M., 1962, The savings investment and valuation of a corporation, Review of Economics and Statistics 44, 37 51. Higgins, R., 1981, Sustainable growth under inflation, Financial Management 10, 36 40. Jensen, M., 1986, Agency costs of free cash flow, corporate finance and takeovers, American Economic Review 76, 323 29. La Porta, R., F. Lopez de Silanes, A. Shleifer, and R. Vishny, 1998, Law and finance, Journal of Political Economy 106, 1113 55.
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