Dividend Sentiment, Catering Incentives, and Return Predictability

58 Pages Posted: 26 Nov 2016 Last revised: 11 Sep 2020

See all articles by Alok Kumar

Alok Kumar

University of Miami - Miami Herbert Business School

Zicheng Lei

University of Surrey - Finance and Accounting Group

Chendi Zhang

University of Exeter Business School

Date Written: September 11, 2020

Abstract

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

Suggested Citation

Kumar, Alok and Lei, Zicheng and Zhang, Chendi, Dividend Sentiment, Catering Incentives, and Return Predictability (September 11, 2020). University of Miami Business School Research Paper No. 2875114, Available at SSRN: https://ssrn.com/abstract=2875114 or http://dx.doi.org/10.2139/ssrn.2875114

Alok Kumar

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Zicheng Lei

University of Surrey - Finance and Accounting Group ( email )

63MS02, Rik Medlik Building
Surrey Business School
Guildford, Surrey GU2 7XH
United Kingdom
01483686372 (Phone)

Chendi Zhang (Contact Author)

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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