Does market perception influence the relationship between dividends&earnings yield? Evidence from developed economies

In this study, we examine whether market sentiment alters the relationship between dividend payout and earnings yield in software and computer services firms across G7 economies during the 2013–2022 period. Our approach combines classical dividend theories with recent insights from behavioral finance, and applies a panel regression framework using the OECD Composite Leading Indicator (CLI) as a measure of market perception. We test whether sentiment strengthens or weakens the link between dividends and forward earnings yield, and whether this potential interaction changes when firms' growth characteristics are taken into account. Our findings show that the dividend payout ratio does not provide significant explanatory power for forward earnings yield, while sentiment maintains a consistently positive association with valuation indicators. Although the sentiment–dividend interaction remains insignificant for earnings yield, it becomes statistically relevant when growth-oriented valuation measures are used as dependent variables. This result suggests that dividends matter more through their contribution to perceived growth prospects than through direct earnings-based valuation channels in sentiment-driven market conditions. By focusing on a single technology-intensive industry in developed markets, we contribute to the literature by explaining why the importance of dividends may vary across sectors, time periods, and sentiment measures. The study also provides evidence on how investor perception influences payout interpretation and highlights the role of market sentiment in shaping valuation dynamics in technologically dynamic firms. Keywords: Dividend policy, earnings yield, investor sentiment, behavioral finance, OECD CLI, market perception, G7 software companies.