The Association between Dividend Payouts and Firm Growth in Australia: Do the Bad Apples Contaminate the Good?
21 Pages Posted: 30 Jul 2018
Date Written: July 28, 2018
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: Suggested Citation