What Do Dividends Tell Us About Earnings Quality?

41 Pages Posted: 8 Jan 2004 Last revised: 24 Dec 2012

Douglas J. Skinner

The University of Chicago - Booth School of Business

Eugene F. Soltes

Harvard Business School

Date Written: August 1, 2009

Abstract

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.

Keywords: Dividends, Earnings Quality, Payout policy, Stock repurchases

JEL Classification: G11, G35, M41

Suggested Citation

Skinner, Douglas J. and Soltes, Eugene F., What Do Dividends Tell Us About Earnings Quality? (August 1, 2009). Review of Accounting Studies, 16, no. 1 (March 2011).. Available at SSRN: https://ssrn.com/abstract=484542

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

Eugene F. Soltes

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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