Dividend Sentiment, Catering Incentives, and Return Predictability
58 Pages Posted: 26 Nov 2016 Last revised: 11 Sep 2020
Date Written: September 11, 2020
Using Internet search volume of dividend-related keywords to measure investor preference for dividends that varies over time and across states, we show that dividend sentiment affects corporate policies and asset prices. Investors search more for dividends when economic conditions are poor, with the peak volume reached during the recent COVID-19 pandemic. Mutual funds that pay high dividends receive more inflows when dividend sentiment is stronger. Further, firms initiate or increase dividends when dividend sentiment is stronger, especially in regions with strong dividend sentiment. Shifts in dividend sentiment predict higher investor demand for dividends and higher returns for high dividend stocks.
Keywords: Dividend catering; investor attention; Internet search volume; dividend sentiment; return predictability.
JEL Classification: G32; G35
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