Dividend Omissions and Forecasts of Future Earnings: Some Positive Evidence on Information Content of Dividends
Posted: 26 Aug 1999
Date Written: August 1994
We find that dividend-omitting firms suffer a greater drop in short-term and long-term forecasts of future earnings than their industry average. Earnings and dividend announcements are substitute signals of short- term earnings prospects - after controlling for recent earnings announcements, dividend omissions do not provide incremental information about short-term earnings expectations. Even after controlling for contemporaneous earnings and other announcements, however, omissions provide incremental information about long-term earnings forecasts. Our findings support Miller and Modigliani's  information content hypothesis that while dividend omissions are associated with short-term earnings downturns, they convey incremental information about "permanent" earnings prospects.
JEL Classification: G32
Suggested Citation: Suggested Citation