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Stale and Scale Effects in Markets-Based Accounting Research: Evidence from the Valuation of Dividends

63 Pages Posted: 9 Mar 2012 Last revised: 4 Sep 2014

Igor Goncharov

Lancaster University - Department of Accounting and Finance

David Veenman

University of Amsterdam - Amsterdam Business School (ABS)

Abstract

This study revisits prior research on the valuation of dividends in an accounting-based valuation framework. Using a battery of tests, we show that market value deflation is essential in market-based tests of dividend displacement and signaling because it controls for ‘stale’ information in addition to scale (size) differences across firms. For U.S. firms, we show that after controlling for ‘stale’ information, the empirical association between dividends and market values switches from positive to negative. This switch is not explained by scale differences across firms. Further, we show that after controlling for staleness, the valuation of dividends remains positive for European firms. This result is explained by the relatively stronger association of dividends with future earnings in these settings (i.e., signaling). Lastly, our country-specific estimates of dividend valuation provide a potentially valuable index for studies aimed at examining the effects of accounting and securities regulation on information asymmetries in an international context.

Keywords: Scale Effect, Valuation, Dividends, Signaling

JEL Classification: M41, C10, G12, G14

Suggested Citation

Goncharov, Igor and Veenman, David, Stale and Scale Effects in Markets-Based Accounting Research: Evidence from the Valuation of Dividends. European Accounting Review, Vol 23, No. 1, pp. 23-55, 2014. Available at SSRN: https://ssrn.com/abstract=1072804 or http://dx.doi.org/10.2139/ssrn.1072804

Igor Goncharov (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

David Veenman

University of Amsterdam - Amsterdam Business School (ABS) ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

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