Seeking Safety in Hard Times: Dividends and Insecurity

56 Pages Posted: 16 Oct 2010

See all articles by Vahap Bülent Uysal

Vahap Bülent Uysal

University of Oklahoma

Evgenia V. Golubeva

University of Oklahoma - Division of Finance

Date Written: October 5, 2010

Abstract

This paper examines the existence of pro-dividend fads and, if such fads exist, their effect on stock valuations. Building upon the notion that investors are more likely to invest in assets they perceive to be safe (e.g., dividend paying stocks) especially when they feel financially insecure, we find that investors value dividend paying stocks more highly than non-dividend paying stocks when investors’ perceptions of their financial well-being are low. Furthermore, in times when investors perceive their well-being to be low, capital markets react more favorably to dividend initiations and increases than in times when well-being is perceived to be high. Our results cannot be explained by alterations in investment opportunities, free cash flow, firm risk, signaling, taxes, or time-varying risk-aversion. Collectively, these findings point to the presence of time-varying pro-dividend fads that influence stock prices.

Keywords: Dividends, Investor Perception, Stock Value

JEL Classification: G35, D03, G14

Suggested Citation

Uysal, Vahap B. and Golubeva, Evgenia V., Seeking Safety in Hard Times: Dividends and Insecurity (October 5, 2010). Available at SSRN: https://ssrn.com/abstract=1692329 or http://dx.doi.org/10.2139/ssrn.1692329

Vahap B. Uysal (Contact Author)

University of Oklahoma ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325 5672 (Phone)

Evgenia V. Golubeva

University of Oklahoma - Division of Finance ( email )

307 West Brooks
Room 205A, Adams Hall
Norman, OK 73019
United States
405-325-7727 (Phone)
405-325-7688 (Fax)

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