A Comparison of Earnings Per Share and Dividends Per Share as Explanatory Variables for Share Price

Christo Auret and J U de Villiers

Studies in Economics and Econometrics, 2000, vol. 24, issue 1, 39-53

Abstract: This paper compares the explanatory power of earnings per share (EPS) and dividends per share (DPS) in explaining share prices. We follow a procedure developed by Demsetz (1995) in which he estimates multiple linear regressions with share price as the dependent variable and contemporaneous EPS, leading EPS and lagged EPS as explanatory variables. We replicate this study using South African EPS data, and then repeat the calculations using South African DPS data as the explanatory variables. We find that EPS has more explanatory power than DPS. Our analysis shows that accounting earnings are interpreted as meaningful by investors. It is therefore appropriate to focus on earnings in share analysis.

Date: 2000
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DOI: 10.1080/03796205.2000.12129264

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