Do Dividends Convey Information About Future Earnings?

59 Pages Posted: 21 May 2018 Last revised: 24 Apr 2019

See all articles by Charles (Chad) Ham

Charles (Chad) Ham

Washington University in St. Louis - John M. Olin Business School

Zachary Kaplan

Washington University in St. Louis - John M. Olin Business School

Mark T. Leary

Washington University in St. Louis - Olin Business School; National Bureau of Economic Research (NBER)

Date Written: January 2019

Abstract

Yes. We show that dividend changes contain information about highly persistent changes in future economic income. Three methodological differences lead us to different conclusions from the extant literature: (i) we use an “event window approach” to cleanly delineate earnings after dividend changes from those before, (ii) we use alternative earnings measures to control for endogenous investment and asset write-downs surrounding dividend changes and (iii) we control for the non-linear relation between dividend changes and market reactions. Our results suggest dividend announcement returns reflect information about the level of permanent earnings, though the timing of the information content is difficult to reconcile with traditional signaling models.

Keywords: Dividends, Earnings Expectations, Payout Policy

JEL Classification: G35

Suggested Citation

Ham, Charles and Kaplan, Zachary and Leary, Mark T., Do Dividends Convey Information About Future Earnings? (January 2019). Available at SSRN: https://ssrn.com/abstract=3176055 or http://dx.doi.org/10.2139/ssrn.3176055

Charles Ham

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Zachary Kaplan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Mark T. Leary (Contact Author)

Washington University in St. Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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