Abstract

http://ssrn.com/abstract=431762
 
 

References (26)



 
 

Citations (50)



 


 



Dividend Changes Do Not Signal Changes in Future Profitability


Gustavo Grullon


Rice University - Jesse H. Jones Graduate School of Business

Roni Michaely


Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)

Shlomo Benartzi


University of California at Los Angeles

Richard H. Thaler


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

October 7, 2003


Abstract:     
One of the most important predictions of the dividend-signaling hypothesis is that dividend changes are positively correlated with future changes in profitability and earnings. Contrary to this prediction, we show that after controlling for the well-known non-linear patterns in the behavior of earnings, dividend changes contain no information about future earnings changes. We also show that dividend changes are negatively correlated with future changes in profitability (return on assets). Finally, we investigate the out-of-sample forecasting ability of dividend changes. We find that models that include dividend changes do not outperform those that do not include dividend changes. In fact, our evidence indicates that investors are better off not using dividend changes in their earnings forecasting models.

Number of Pages in PDF File: 38

JEL Classification: M41, G35, G12

working papers series





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Date posted: October 8, 2003  

Suggested Citation

Grullon, Gustavo and Michaely, Roni and Benartzi, Shlomo and Thaler, Richard H., Dividend Changes Do Not Signal Changes in Future Profitability (October 7, 2003). Available at SSRN: http://ssrn.com/abstract=431762 or http://dx.doi.org/10.2139/ssrn.431762

Contact Information

Gustavo Grullon
Rice University - Jesse H. Jones Graduate School of Business ( email )
P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)
HOME PAGE: http://www.ruf.rice.edu/~grullon/
Roni Michaely (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
Shlomo Benartzi
University of California at Los Angeles ( email )
D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-206-9939 (Phone)
310-267-2193 (Fax)
Richard H. Thaler
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5208 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  26
Citations:  50

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