Dividend Sentiment, Catering Incentives, and Return Predictability
63 Pages Posted: 26 Nov 2016 Last revised: 1 Mar 2019
Date Written: December 20, 2018
Using Internet search volume of dividend-related keywords as a direct measure of investor preference for dividends (i.e., dividend sentiment), we show that dividend sentiment is high when economic conditions are poor. 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. We find similar results for share repurchases. Shifts in dividend sentiment predict higher demand for dividends and higher returns for high dividend stocks. Collectively, these results suggest that dividend sentiment affects corporate policies and asset prices.
Keywords: Dividend catering; investor attention; Internet search volume; dividend sentiment; return predictability.
JEL Classification: G32; G35
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