The Association between Dividend Payouts and Firm Growth in Australia: Do the Bad Apples Contaminate the Good?

29 Pages Posted: 4 Jan 2015

See all articles by Michael J. Dempsey

Michael J. Dempsey

Ton Duc Thang University (TDTU)

Thanh Truong

RMIT University

Multiple version iconThere are 2 versions of this paper

Date Written: January 2, 2015

Abstract

The Australian Equities Database (AED) provided by the Australian Centre for Financial Studies (ACFS) provides the opportunity for a timely investigation of Australia’s stock-listed firms and its stock markets. Two elements that are crucial to the effective functioning of markets are (1) the effectiveness of firms in reinvesting their earnings (as opposed to distributing them to shareholders) and (2) the effectiveness of markets in differentiating between those firms whose reinvestments lead to a growth and those whose reinvestments do not. In this paper, we seek to address both of these aspects of Australia’s financial markets. Our findings suggest that firms with high earnings retentions run the range between high and low performers and that the market can only be partially successful in distinguishing between them. This leads to a concern that fund managers have a bias to invest in firm that provide more handsome dividends.

Keywords: dividends, P/E, firm performance

JEL Classification: G35

Suggested Citation

Dempsey, Michael J. and Truong, Thanh, The Association between Dividend Payouts and Firm Growth in Australia: Do the Bad Apples Contaminate the Good? (January 2, 2015). 2015 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2544541 or http://dx.doi.org/10.2139/ssrn.2544541

Michael J. Dempsey (Contact Author)

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

Thanh Truong

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia

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