Cash dividends, stock dividends and subsequent earnings growth

Chin-Sheng Huang, Chun-Fan You and Szu-Hsien Lin

Pacific-Basin Finance Journal, 2009, vol. 17, issue 5, 594-610

Abstract: This study examines the association between dividend payout ratios and subsequent earnings growth using a unique dataset on Taiwanese firms paying dual dividends. The practice of paying dual dividends, which is quite common in Taiwan, gives rise to a novel 'balanced-dividend hypothesis' to be addressed in this study. The main thrusts of the hypothesis are that high cash-dividend payouts may reduce agency costs, and that high stock-dividend payouts provide a signal of optimism. The empirical evidence shows that a significant positive association between dividend payout ratios and subsequent earnings growth exists only in the dual-dividend payouts sample. After further dividing the whole sample according to their cash-to-stock ratios, the significantly positive association between dual-dividend payouts and subsequent earnings growth is discernible only in the balanced-dividend sub-samples.

Keywords: Dividend; payout; Dual; dividend; Balanced-dividend; hypothesis (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:17:y:2009:i:5:p:594-610

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