Why Do Companies Pay Dividends?: A Comment

Abstract

This study reviews one of the unresolved research puzzles in corporate finance; why do companies pay dividends? In this context, a qualitative study dealing with content analysis is carried out based on theoretical and empirical researches. After critically reviewing 407 research articles in dividend policy, 50 empirical studies were taken as the sample based on relevance to the research puzzle. The content analysis provides some significant insights and stylized facts with regard to the corporate dividend policy. However, the research conducted is fundamentally flawed in its design which is based on quantitative approaches in order to elucidate a behavioural explanation. As a result, most of the study findings cannot be relied upon to see consistency with the theories in question.Despite years of theoretical and empirical evidences, the findings show that the dividend puzzle still remains as an unresolved research phenomenon in corporate finance due to lack of unanimity among the researchers over the explanations. This study provides the reader with an all-embracing understanding of the theories and empirical explanations of the dividend puzzle. It is imperative for the researchers to focus on all empirical and theoretical explanations in a single study and test them simultaneously using a triangular approach in order to have a single consensus over this puzzle. Thus, developing a new paradigm or models to deal with the dividend puzzle is suggested and until then, the deduction of various theories in different studies is inconclusive and inconsistent.