|
|
|
|
||||
|
||||
Dividend Policy Irrelevancy and the Construct of EarningsZhan GaoLancaster University James A. OhlsonNew York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Accounting, Taxation & Business Law Adam J. OstaszewskiLondon School of Economics January 6, 2013 Journal of Business Finance & Accounting, Forthcoming Abstract: This paper analyzes the characteristics of earnings in valuation settings where the dividend policy is irrelevant to equity value. The paper first demonstrates an equivalent characterization of dividend policy irrelevancy (DPI) in a general linear dynamic. It then proceeds to show how DPI leads to ideal and practical constructs of earnings and examines their analytical properties. We further demonstrate that earnings properties can be used to deduce the core approach in practical equity valuation — namely, measures of growth in expected earnings explain the price to forward earnings ratio. However, unlike dividends, free cash flow cannot generally be claimed to be irrelevant to value.
Keywords: equity valuation, information dynamics, dividend policy, earnings JEL Classification: M41, G12, G14 Accepted Paper SeriesDate posted: June 23, 2011 ; Last revised: January 10, 2013Suggested CitationContact Information
|
|
|||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo6 in 0.375 seconds
