The Dividend Effect

Andreas Schiønning Smed & Jonas Søborg Christensen

Student thesis: Master thesis


This thesis aims to provide answers to what causes dividend yielding stocks to outperform the market. Through the work of this thesis, we can attribute this to three underlying causes.
We found that dividend yielding companies experience lower agency costs, via the flexibility of the free cash flow. How dividends provide better quality of earnings, and better quality of financial disclosures. This in return causing the underlying risk of the company to decrease, as dividend paying companies are less prone to report losses and less likely to report untruthful financial disclosure. Our study shows that these three things, can be attributed to have some explanatory powers, as to why dividend yielding stocks outperforms the market. These three factors should not be seen individually, but as an aggregate explanation for the performance. These findings are the product of the extrapolation of information from market data and analysis done on free cash flow, within theory of agency costs.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2017
Number of pages101