Attention to Dividends, Inattention to Earnings?

62 Pages Posted: 19 Dec 2019 Last revised: 26 May 2021

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

Steven Utke

University of Connecticut - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: May 18, 2020

Abstract

We examine whether dividends serve as substitutes or complements to accounting information in firm valuation. Consistent with dividends substituting for earnings information, we find that dividend paying firms have 11-15% lower earnings response coefficients (ERCs) than non-payers. We find more substitution when the dividend provides a stronger signal of permanent earnings: when the firm is less likely to cut the dividend, when the firm is likely to fund the dividend out of earnings rather than cash reserves, or when the dividend is larger. We then show dividend payers have lower absolute returns, less trading volume, and fewer analyst forecasts at the earnings announcement (EA), suggesting dividend payers attract less attention to their less informative EAs. Finally, we show that the lower EA attention translates into less earnings management and fewer earnings-related disclosures for dividend payers relative to non-payers. Collectively, this evidence suggests dividends supply information about permanent earnings and, although costly, could be an efficient way for some firms to satisfy investors’ demand for earnings information.

Keywords: dividends, information environment, earnings announcements, earnings management

JEL Classification: G35, M41

Suggested Citation

Ham, Charles and Kaplan, Zachary and Utke, Steven, Attention to Dividends, Inattention to Earnings? (May 18, 2020). Available at SSRN: https://ssrn.com/abstract=3497913 or http://dx.doi.org/10.2139/ssrn.3497913

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 (Contact Author)

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

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

Steven Utke

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

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