Behavioural finance and dividend changes as predictors of future profitability: A literature review

Fakhrul Hasan () and Mochammad Fahlevi ()
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Fakhrul Hasan: Newcastle Business School, Northumbria University, Newcastle, NE1 8ST, UK

Journal of Economics and Business Letters, 2024, vol. 4, issue 2, 27-39

Abstract: This paper reviews the literature on dividend policy from the perspective of behavioral finance, addressing one of the long-standing puzzles in corporate finance: why firms pay dividends and whether dividend changes predict future profitability. It synthesizes theoretical and empirical evidence, emphasizing behavioral explanations such as self-control, mental accounting, and prospect theory. The review also highlights the debate over the information content of dividends and their relation to earnings, contrasting findings from signaling theory, traditional finance, and behavioral models. The paper proposes a research agenda that integrates behavioral biases and psychological factors into dividend policy research, offering new insights for academics and practitioners interested in corporate payout policy and investor behavior.

Keywords: Dividend policy; Behavioral finance; Prospect theory; Signaling theory; Corporate finance (search for similar items in EconPapers)
JEL-codes: D81 G35 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:prv:jeblpv:286

DOI: 10.55942/jebl.v4i2.286

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