The Association between Dividend Payouts and Firm Growth in Australia: Do the Bad Apples Contaminate the Good?
29 Pages Posted: 4 Jan 2015
Date Written: January 2, 2015
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: Suggested Citation