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We survey the empirical literature on corporate dividend policy, with emphasis on developments over the last two decades. We divide our review into two parts. We first summarize what we “know” about dividend policy (the set of observations about the nature of (and trends in) dividend policies that are largely agreed upon in the literature). In the second part, we focus on the unresolved question of why dividends matter, particularly on areas of disagreement, such as the channels through which dividends impact firm value. Payout policy can alter a firm’s market value by affecting its future cash flows or its cost of capital (in which case it impacts intrinsic value) or by signaling value-relevant information to investors (affecting only the timing of when that value is reflected in market prices). We organize the survey around these three possibilities, highlighting relevant empirical evidence and areas of remaining uncertainty.
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