Cash dividends, stock dividends and subsequent earnings growth

Huang, Chin-Sheng; You, Chun-Fan; Lin, Szu-Hsien

doi:10.1016/j.pacfin.2009.03.002

Cited by 18 publications

(13 citation statements)

References 30 publications

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“…These theories, however, only focused on changes in dividends and not the payout ratio as such. More recent studies confirmed a positive relationship between payout ratios and future earnings (Arnott & Asness, 2003;Zhou & Ruland, 2006;Huang et al, 2009), contrary to popular belief. The relationship was first tested on the aggregate market level, and later on the individual company level as well.…”

Section: Literature Reviewmentioning

confidence: 72%

Dividend payout and future earnings growth: A South African study

Vermeulen

Smit

2011

SAJBM

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Conventional wisdom posits that the payment of dividends will decrease the funds available to finance growth, and will therefore lead to lower future earnings growth. This belief was challenged in recent years with research that tested the relationship between dividend payout and future earnings growth, both on the individual company level and aggregate market level in different countries. Recent results contradict popular belief, and show that companies with high payout ratios tend to realise stronger future earnings growth.This study investigated the same relationship in South Africa, as an example of a developing country, using a large sample of 12,669 company-years over the period 1973 to 2009. The results fully support recent findings that dividend payouts precede higher future earnings growth.

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Section: Literature Reviewmentioning

confidence: 72%

Dividend payout and future earnings growth: A South African study

Vermeulen

Smit

2011

SAJBM

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“…Like a surprise, recently the whole concept is twisted out. In fact recent studies note that dividend payout ratios have a positive association with future earnings growth (Arnott & Asness, 2003;Zhou & Ruland, 2006;Vivian, 2006;Huang & You, 2008;Tan & Flint, 2010).…”

Section: Literature Reviewmentioning

confidence: 99%

Modelling the linkages between dividend policy and future earnings

2015

Weber, T., McPhee, M.J. And Anderssen, R.S. (Eds) MODSIM2015, 21st International Congress on Modelling and Simulation

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The motivation of this study is to investigate whether the strength of payout ratios able to explain expected earnings. More definitely, do higher dividend payout ratios direct to higher return? The hypothesis is that higher dividend payout is a signal of optimism that leads to higher likelihood of subsiding agency cost and thus resulting to higher growth in expected earnings. In other words lower payout ratio leads to inefficient empire building or even funding in less than ideal projects whereas higher payout ratio leads to more carefully chosen projects leading to higher subsequent growth in earnings. This study aims to explore the relation of dividend policies with expected earnings in 5 major Asian countries-Australia, Singapore, China, Japan and South Korea. The motivation is the inevitably dissimilar environmental characteristic of these Asian countries. Other than that, most of the empirical studies on this subject are conducted in either developed US or EU capital markets. The 5 countries are different in their legal setup, taxation policies and financial structures. All these factors have visible impact on their payout policies. The fixed effect model of regression on 10 year data from 2003 through 2012 reveals some mixed results. We found that the common law followers (Australia and Singapore) have higher mean values for payout ratios whereas the civil law followers (China, South Korea, and Japan) have lower mean value for payout ratios. For all the countries, we found that the large firms tend to have lower future earnings growth. More importantly, we found significant positive relation between dividend payout ratios and future earnings growth in Australia, Singapore, Japan and South Korea. The pervasive positive relationship means that high dividend payout ratios lead to strong growth in subsequent earnings. We found strong positive evidence in favor of free cash flow theory to explain this relationship in Japan. However, China's findings as a negative relationship of dividend payout with future earnings growth is opposing to the inclusive inference.

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“…Investors like companies that provide large dividends and greater dividend payments, managers would be more encouraging income smoothing practices and would try to maximize profits (Denis & Osobov, 2008;Huang, You, & Lin, 2009). However, Noviana & Yuyetta (2011) argue that the dividend payout ratio is one factor that allegedly affects earnings smoothing action.…”

Section: Jurnal Keuangan Dan Perbankan | Financementioning

confidence: 99%

Management Dysfunctional Behaviour toward Financial Statements: Income Smoothing Practice in Indonesia’s Mining Industry Sector

Handoyo

Fathurrizki

2018

Jurnal Keuangan Dan Perbankan

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Companies tried to maintain reported fluctuations in earnings and intervene them to the desired level. With the practice of income smoothing, the information was presented in financial statements; especially income statement became invalid so that it will mislead information to the users. We analyzed the factors influencing the income smoothing practice. Populations in this study were 45 mining companies listed on Indonesian Stock Exchange (IDX). The data used in this study was a secondary data screened by using purposive sampling method. Variables used in this research were company size measured by total assets, profitability proxied by return on assets, dividend payout ratio was proxy by comparing the dividend per share divided by earning per share, financial leverage was proxied by debt to total assets, and income smoothing was measured using Eckel index as dependent variable. This study used logistic regression tools. We found that dividend payout ratio and financial leverage gave significant positive effect to income smoothing practice. However, the size of the company and profitability did not affect to influence income smoothing practice. The investor who willing to invest in shares, it was important to scrutinize dividend payout ratio and financial leverage level of the future company.

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Cash dividends, stock dividends and subsequent earnings growth

Cited by 18 publications

References 30 publications

Dividend payout and future earnings growth: A South African study

Dividend payout and future earnings growth: A South African study

Modelling the linkages between dividend policy and future earnings

Management Dysfunctional Behaviour toward Financial Statements: Income Smoothing Practice in Indonesia’s Mining Industry Sector

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