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

21 Pages Posted: 30 Jul 2018

See all articles by Michael J. Dempsey

Michael J. Dempsey

TDT University; Financial Research Network (FIRN)

Thanh Truong

RMIT University

Date Written: July 28, 2018

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. In this paper, the aim is to assess (i) the effectiveness of a firm’s reinvestment of its earnings, and, in reciprocation, to assess (ii) the effectiveness of the markets in differentiating between those firms whose reinvestments lead to a growth in earnings and those whose reinvestments do not. 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: Dividend Payout, Firm Growth, P/E ratio

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? (July 28, 2018). 31st Australasian Finance and Banking Conference 2018, Available at SSRN: https://ssrn.com/abstract=3221888 or http://dx.doi.org/10.2139/ssrn.3221888

Michael J. Dempsey

TDT University ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

Financial Research Network (FIRN)

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

Thanh Truong (Contact Author)

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia

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