The dividend paradox: a literature review

This paper discusses the theories that shape the debate on dividend policy with an emphasis on emerging markets and recent empirical findings. The studies investigated in this research perceived multiple explanations for paying dividends as being valid and credible, and contribute to explaining why firms pay dividends. The dominance of one theory over another and the contradicting evidence in favour or against a specific theory are largely influenced by the testing environment. In some cases, the theories are contradicting, in others, they are complementary. Divergence in the outcomes and findings of the empirical research that tries to confirm or refute these theories deepens, further, the complexity of the dividend puzzle. This paper finds that, while researchers contribute to empirical evidence and build knowledge to help solve the dividend controversy, the results are inconclusive, contradicting, and none is universally accepted. This leaves ample room for further thorough research on dividend policy.