Dividends, trust, and firm value

Martin Kapons (), Peter Kelly (), Robert Stoumbos () and Rafael Zambrana ()
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Martin Kapons: University of Amsterdam
Peter Kelly: University of Notre Dame
Robert Stoumbos: ESSEC Business School
Rafael Zambrana: University of Notre Dame

Review of Accounting Studies, 2023, vol. 28, issue 3, No 7, 1354-1387

Abstract: Abstract We find evidence that investors value dividends differently depending on their level of trust. Our tests indicate that investor demand for dividend-paying stocks increases as trust decreases, and that this relationship affects market values. We begin with survey evidence showing that people think accounting fraud is less likely among dividend payers and that people with low trust are more likely to hold dividend-paying stocks. We then empirically exploit accounting fraud discoveries within a mutual fund’s portfolio as a shock to trust. In response to these shocks, we show that mutual funds tilt their portfolios toward dividend-paying stocks. This result is not explained by a shift in risk preferences, indicating that these institutional investors are seeking dividends in particular rather than stable firms that just happen to pay dividends. Finally, we provide evidence that dividend payers experience a premium in their market values relative to non-payers when their investor base becomes less trusting.

Keywords: Dividends; Trust; Fraud; Mutual funds (search for similar items in EconPapers)
JEL-codes: G40 G51 K22 M41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11142-023-09795-4

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