The Perception of Dividends By Management

The "dividend puzzle," i.e., the love stockholders have for dividends, has always been one of the great mysteries of modern finance/financial economics. Six classes of dividend theories have been advanced during the last five decades, almost all using the logic of the economic person. Unfortunately, all these models suffer from either a lack of verifiability or contradicting empirical evidence. This paper takes an approach that has been largely ignored so far by dividend research. Instead of analyzing large volumes of market data based on yet another "rational" model, we study the perception of dividends by top corporate decision-makers. The respondents' answers to a survey instrument are then analyzed and compared with accounting, economic, and market data. The results are surprising in terms of both similarity and dissimilarity of perception. We hope that our results and this type of research will open up new ways of looking at this puzzle.