Do dividends convey information about future earnings?

Charles G. Ham, Zachary R. Kaplan and Mark T. Leary

Journal of Financial Economics, 2020, vol. 136, issue 2, 547-570

Abstract: Yes. We show that dividend changes contain information about highly persistent changes in future economic income. Three methodological differences lead us to different conclusions from the extant literature: (i) we use an “event window approach” to cleanly delineate earnings after dividend changes from those before, (ii) we use alternative earnings measures to control for endogenous investment and asset write-downs surrounding dividend changes, and (iii) we control for the nonlinear relation between dividend changes and market reactions. Our results suggest dividend announcement returns reflect information about the level of permanent earnings, though the timing of the information content is difficult to reconcile with traditional signaling models.

Keywords: Payout policy; Dividends; Earnings expectations (search for similar items in EconPapers)
JEL-codes: G35 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:2:p:547-570

DOI: 10.1016/j.jfineco.2019.10.006

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