Dividends and Trust

32 Pages Posted: 18 Aug 2013 Last revised: 23 Jul 2020

See all articles by Peter Kelly

Peter Kelly

University of Notre Dame

Robert C. Stoumbos

Columbia University - Columbia Business School

Date Written: July 23, 2020

Abstract

We present new evidence on the importance of trust in financial decision-making and asset valuation. We predict that less trusting individuals will have a preference for dividend-paying stocks, and that the trust level of the investor base will interact with dividend payments to affect asset valuations. In a cross-section of households, those who are less trusting tilt their portfolios towards dividend-paying stocks. Furthermore, the trust level of the investor base partially explains the valuation of dividend-payers relative to non-dividend-payers. Finally, we use a sample of fraud events as shocks to trust, and show that the dividend premium is higher after these shocks occur.

Keywords: behavioral finance, dividend, trust

Suggested Citation

Kelly, Peter and Stoumbos, Robert C., Dividends and Trust (July 23, 2020). Available at SSRN: https://ssrn.com/abstract=2311512 or http://dx.doi.org/10.2139/ssrn.2311512

Peter Kelly (Contact Author)

University of Notre Dame ( email )

251 Mendoza
South Bend, IN 46637
United States

Robert C. Stoumbos

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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