Behavioral Risk Preferences and Dividend Changes: Exploring the Linkages with Prospect Theory Through Empirical Analysis

Fakhrul Hasan*, Umar Nawaz Kayani, Tonmoy Choudhury

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


In this research paper we used prospect theory (PT) to analysis the association between risk and dividend changes. We used global index (24 countries index data) data from 2000 to 2021. To improve PT, we suggest a novel alternative to the traditional reference point. Reference was established by tracking dividend growth or declines across sectors. The assumption is that before the end of the period, all the firms’ industrial dividend changes have to be known. In this research we calculated our reference point separately for individual years because the mean of industry dividend changes in the previous year. We utilised GMM estimation for the robustness test and split our sample up by business size, and we used 3 empirical methods (pooled regression, industry regression, and cross-sectional regressions analysis). Using the aforementioned empirical methods, we determined that dividend fluctuations are significantly correlated with a decrease in a company's risk. These findings imply that companies whose dividend changes are more than (less than) their benchmark will take on more (less) risk.

Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalGlobal Journal of Flexible Systems Management
Early online date1 Sep 2023
Publication statusE-pub ahead of print - 1 Sep 2023

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