Abstract This paper revisits the dividend puzzle, described here as questions about the relevance of dividend policy and how managers should (and do) determine dividend policy. We examine theoretical and empirical research on dividends and share repurchases because they are the principal mechanisms by which corporations disburse cash to their shareholders. Despite a voluminous amount of study, researchers still do not have all the answers to the dividend puzzle. However, we are closer to its resolution. We also do not have definitive answers to why managers choose one method of cash distribution over the other. Solving the dividend puzzle may depend on understanding the effects of various market imperfections or frictions. Because various imperfections affect firms differently, dividend policy may vary substantially from one firm to another. Models that consider the competing frictions on a firm‐specific basis offer promise for resolving the dividend puzzle.
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