Are investors desires for dividend increases stronger than dividend initiation

Abstract

This study aims to explore whether information asymmetry premium (IAP) as the foundation of the investors' desire in the dividend increases decision is stronger than the dividend initiation decision. This study finds that IAP can significantly complement the dividend increases decisions and substitute dividend premium for dividend initiation. The results of the study support Li and Lie (2006) and Chazi et al. (2018), who fleshed out Baker and Wurgler (2004b). The findings of this study show that the investor's desire towards dividend increases reflects investor sentiment on dividends, explained through the level of information asymmetry between dividend payers and non-payers. Further analysis shows that irrational investor behaviour in expecting dividend increases to be paid continuously is significant compared to dividend initiation. This research contributes to behavioural finance research in bonding dividend catering incentives and dividend signaling theory.