Market sentiment and its impact on the earnings yield- dividend payout relationship: Evidence from emerging markets

In this study, we examine the effect of market sentiment on the relationship between dividend payout ratio and earnings yield using software companies operating in developing countries. Emerging markets have high volatility and different risk dynamics compared to developed markets. The study aims to understand how market sentiment impacts the dynamics between dividend payouts and earnings yields as well as other financial metrics controlling for firm return and risk metrics. We employ a panel data set consisting of 49 cross-sections between 2013 and 2022 and covering companies from BRICS countries, Brazil, China, India and South Africa, that have common stocks traded on major stock exchanges. Our data includes dividend-paying public companies in the software sector. Our results document that there is a negative relation between dividend payout ratio and future earnings yield and market sentiment decreases the strength of this negative relationship. According to our analyses the impact of market sentiment on the relationship between dividend yield and future asset growth is only marginal for the software companies in BRICS countries during our sample period. Our analyses also indicate that the presence of Covid- 19 crisis have no significant effect our results.