The Informativeness of Dividends and Franking Credits

41 Pages Posted: 10 Jan 2012  

Jeffrey Coulton

UNSW Business School

Caitlin M. S. Ruddock

UNSW Australia Business School, School of Accounting

Stephen L. Taylor

University of Technology Sydney; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Date Written: January 9, 2012

Abstract

We investigate the informativeness of dividends and franking credits with respect to earnings persistence. We find strong evidence that dividend paying firms have more persistent earnings than non-dividend paying firms. Firms that pay franked dividends have significantly more persistent earnings than firms that pay unfranked dividends. Consistent with higher levels of franking identifying more mature firms, fully franked dividend paying firms have significantly less persistent losses than firms that pay partially franked dividends. Market pricing tests show that investors do rationally price earnings persistence once we control for profit compared with loss observations. Our results are robust to alternative model specifications and controlling for dividend size and firm age.

Keywords: earnings persistence, dividends, franking credits

JEL Classification: G11, G35, M41

Suggested Citation

Coulton, Jeffrey and Ruddock, Caitlin M. S. and Taylor, Stephen L., The Informativeness of Dividends and Franking Credits (January 9, 2012). 2012 Financial Markets & Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=1982249 or http://dx.doi.org/10.2139/ssrn.1982249

Jeffrey J. Coulton

UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61293855811 (Phone)
+93855925 (Fax)

Caitlin M. S. Ruddock

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+612 9385 5806 (Phone)
+612 9385 5925 (Fax)

Stephen L. Taylor (Contact Author)

University of Technology Sydney ( email )

UTS Business School
PO Box 123 Broadway
Sydney, NSW 2007
Australia
61295143437 (Phone)
61295143513 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7 UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

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