Is the Dividend Puzzle Solved?

31 Pages Posted: 19 Feb 2009

See all articles by Maria Rosa Borges

Maria Rosa Borges

ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics)

Date Written: February 15, 2009


Since the 1960s, there is an ongoing debate on dividend policy, which remains a controversial issue to this day. Why do firms pay dividends? For decades, the academics have not been able to agree on any convincing explanation, and the same time, many even claim that firms should not pay dividends, and so we have a "dividend puzzle". The purpose of this paper is to summarize the main recent empirical findings on dividend policy, and to discuss how well alternative theories hold up against these. We claim that the lifecycle theory of the firm, together with agency costs of holding excess cash and the pressure exerted by shareholders for cash distributions, seem to be the most promising avenues for further research, to solve the "dividend puzzle", and to build a complete payout policy theory. Besides being very intuitive, this theory is consistent with most empirical facts on U.S. and international firms' payout policy.

Keywords: payout policy, lifecycle theory, agency costs, dividend puzzle

JEL Classification: G35

Suggested Citation

Borges, Maria Rosa, Is the Dividend Puzzle Solved? (February 15, 2009). Available at SSRN: or

Maria Rosa Borges (Contact Author)

ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1200

UECE (Research Unit on Complexity and Economics) ( email )

Rua Miguel Lupi, 20
Lisboa, 1200-781


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