Dividends, Trust, and Firm Value

43 Pages Posted: 18 Aug 2013 Last revised: 28 Nov 2022

See all articles by Martin M. Kapons

Martin M. Kapons

University of Amsterdam - Amsterdam Business School

Peter Kelly

University of Notre Dame

Robert C. Stoumbos

Columbia University - Columbia Business School

Rafael Zambrana

University of Notre Dame - Mendoza College of Business

Date Written: November 22, 2022

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. We show that the mutual funds,
in response to these shocks, tilt their portfolios toward dividend-paying stocks. This result does
not appear to be explained by a shift in risk preferences, indicating that the mutual funds are
seeking dividends in particular. 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.

Suggested Citation

Kapons, Martin M. and Kelly, Peter and Stoumbos, Robert C. and Zambrana, Rafael, Dividends, Trust, and Firm Value (November 22, 2022). Available at SSRN: https://ssrn.com/abstract=2311512 or http://dx.doi.org/10.2139/ssrn.2311512

Martin M. Kapons

University of Amsterdam - Amsterdam Business School ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

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

Rafael Zambrana

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

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