What Do Dividends Tell Us About Earnings Quality?
Douglas J. Skinner
The University of Chicago - Booth School of Business
Eugene F. Soltes
Harvard Business School
August 1, 2009
Review of Accounting Studies, 16, no. 1 (March 2011).
Over the past 30 years, there have been significant changes in the distribution of earnings — cross-sectional variation has increased, with increasing left skewness—as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of other firms and that this relation is remarkably stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. These results do not hold as strongly for stock repurchases, consistent with them representing less of a commitment than dividends.
Number of Pages in PDF File: 41
Keywords: Dividends, Earnings Quality, Payout policy, Stock repurchases
JEL Classification: G11, G35, M41
Date posted: January 8, 2004 ; Last revised: December 24, 2012