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Behavioural finance and dividend changes as predictors of future profitability: A literature review

Author

Listed:
  • Fakhrul Hasan

    (Newcastle Business School, Northumbria University, Newcastle, NE1 8ST, UK)

  • Mochammad Fahlevi

    (Management Department, BINUS Online, Bina Nusantara University, Jakarta 11480, Indonesia)

Abstract

This paper reviews the literature on dividend policy from the perspective of behavioral finance, addressing one of the long-standing puzzles in corporate finance: why firms pay dividends and whether dividend changes predict future profitability. It synthesizes theoretical and empirical evidence, emphasizing behavioral explanations such as self-control, mental accounting, and prospect theory. The review also highlights the debate over the information content of dividends and their relation to earnings, contrasting findings from signaling theory, traditional finance, and behavioral models. The paper proposes a research agenda that integrates behavioral biases and psychological factors into dividend policy research, offering new insights for academics and practitioners interested in corporate payout policy and investor behavior.

Suggested Citation

  • Fakhrul Hasan & Mochammad Fahlevi, 2024. "Behavioural finance and dividend changes as predictors of future profitability: A literature review," Journal of Economics and Business Letters, Privietlab Research Center, vol. 4(2), pages 27-39, April.
    • Handle: RePEc:prv:jeblpv:286
    DOI: 10.55942/jebl.v4i2.286
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    Keywords

    Dividend policy; Behavioral finance; Prospect theory; Signaling theory; Corporate finance;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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