Dividends and Trust
32 Pages Posted: 18 Aug 2013 Last revised: 23 Jul 2020
Date Written: July 23, 2020
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
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