Do Dividends Convey Information About Future Earnings?
59 Pages Posted: 21 May 2018 Last revised: 24 Apr 2019
Date Written: January 2019
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: Suggested Citation