


Attention to Dividends, Inattention to Earnings?
Why do firms pay dividends? A well-known finance theory proposes that, in frictionless markets, dividends are irrelevant for firm valuation because an investor’s wealth does not change if the firm holds a dollar in the bank or if the firm returns a dollar to an investor through a dividend who then holds it in the bank.[1] Despite this, roughly 40 percent of public firms pay dividends and, because they are rarely cut, dividends provide investors with a predictable stream of cash. Research has had limited success in explaining why firms pay dividends (i.e. the benefits), but the costs, such … Read more