Dividend Changes and the Persistence of Past Earnings Changes

Koch, Adam S.; Sun, Amy X.

doi:10.1111/j.1540-6261.2004.00693.x

Cited by 109 publications

(88 citation statements)

References 29 publications

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“…It appears that investors assign more credence to the information content of negative dividend signals in comparison to positive dividend signals. These findings complement that of Rimbey and Officer (1992), Koch and Sun (2004), Kadioglu (2008) Asamoah and Nkrumah (2010). The insignificant impact on the returns could also be due to the presence of insider trading (Ali & Chowdhury (2010).…”

Section: Analysis Of Cash Dividend Announcementssupporting

confidence: 74%

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Signaling mechanism of corporate payout policy: A case of Indian firms

Anwar¹,

Singh²,

Jain³

2016

10.5267/j.ac

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Historically, cash dividends are the most important form of payout policy; however, they have been losing popularity relative to share repurchases. This paper examines the signaling effect of the payout decisions namely, cash dividends and share repurchases by BSE 500 index companies. It attempts to uncover the underlying forces behind the firm's choices of payout policy in the Indian context. Using the standard 'Event Standard Methodology', a strong case of positive signaling is reported in case of repurchase announcements vis-a-vis cash dividend announcements. It is observed that cash dividends are not perceived by investors as positive signals as they prefer their earnings to be retained by the companies for growth prospects. In case of share repurchases, the existence of undervaluation, signaling and wealth transfer hypotheses is reported, consistent with the fact the share repurchases are welcomed by the Indian companies. The results would provide insights into the economics of the choice between cash dividends versus share repurchases as payout mechanism adopted by the sample companies. The findings would also be useful to the academia as well as industry in understanding the payout practice and the extent to which the Indian managers use the assumptions, models and decision rules regarding payout.

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Section: Analysis Of Cash Dividend Announcementssupporting

confidence: 74%

“…Also the survey evidences by Brave et al (2005) found that managers do not have signaling purpose in their mind when they decide on payout policy. These findings complement that of Rimbey and Officer (1992), Koch and Sun (2004), Kadioglu (2008) Asamoah and Nkrumah (2010). 7.2.…”

Section: Concluding Observations and Implicationssupporting

confidence: 74%

Signaling mechanism of corporate payout policy: A case of Indian firms

Anwar¹,

Singh²,

Jain³

2016

10.5267/j.ac

View full text Add to dashboard Cite

show abstract

“…Therefore it is expected that changes of component of current earnings more show about changes on future earnings than changes on current dividend. Thus, the third hypotheses can be stated as follows: Koch and Sun (2004) find that changes of dividend preceded by changes of earnings with the same signal, hence it positively corelate with market reaction around announcement of dividend changes (Sutopo, 2005). Basu (1997) finds that negative changes of earnings was less persistent than positive changes of earnings.…”

Section: Accrual-cash Flow and Dividend Signaling Approachmentioning

confidence: 99%

“…Study about dividend can be carried out as study on how market react to the announcement of dividend payment that is commonly called as dividend signaling (Koch & Sun, 2004) and information content of dividend about future earnings (Nichols & Wahlen, 2004). …”

Section: Hypothesis Developmentmentioning

confidence: 99%

Finance Perspective versus Accounting Perspective: The Case of Earnings Persistence in Indonesia

Bandi¹

2012

IJEF

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This study aims at comparing accounting and finance perspective to predict earnings persistence. Accounting perspective predicts that current earning components affect the future earnings, while finance perspective predicts that current dividends affect the future earnings. The results show that component of earnings more persistence rather than total earning, and persistence of earnings are also showed by changes of dividend. The results of this study that changes in dividend policy have information contents about future earnings. Increase in dividend payment show that firm believe that firm have better prospect in the future thus able to achieve better future performance. This result confirm prospect theory. This research also find manager use dividend policy to convey relevant information to investor. Managers believe that firms have good opportunity in the future and achieve higher performance. In this case, managers pays higher dividend to give signal to investor that firm will achieve better performance. Firms using dividend policy to give signal to investor to convey relevant information. This result confirm dividend signalling theory. The results also confirm agency theory studying the relationship between management (agent) and shareholder (principal) and assuming the more unite the shareholder, the more powerful shareholders' position rather management's position. The principal interested to both earnings distribution and increasing in future earnings, whereas management prefer increasing permanent earnings with increasing investment on prospective project rather than dividing dividend. The findings of the study show that increase in current earnings and dividend indicates increase in future earnings and dividends. The results of the study show that accrual-cash flow perspective better indicating quality of earnings than dividend signaling perspective.

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“…Similar to Healy and Palepu (1988), Nissim and Ziv (2001), Michaely and al (1997), Dyl and Weigand (1998), Grullon and al (2002), Koch and Sun (2004) Neil and Robert (2009) attempted to explain whether the message conveyed by the dividend distribution based on individual characteristics of firms from the perspective of agency and signaling theory and clientele effects. The authors calculated the cumulative abnormal returns using Fama and French's three-factor model.…”

mentioning

confidence: 99%

On the Determinants of Dividends’ Information Content

Said¹

2012

JMS

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This paper examines the determinants of dividends' information content. We put an emphasis on the role of ownership structure in explaining the impact of dividends on shareholders' wealth. To this end, our study examined a sample of 136 French firms during the year 2007 to empirically validate our model. The empirical results show a negative reaction of stock prices to dividend announcement. This finding is consistent with the hypothesis of deterioration of growth opportunities. However, we have concluded that firms' characteristics significantly affect dividends' information content.

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Dividend Changes and the Persistence of Past Earnings Changes

Cited by 109 publications

References 29 publications

Signaling mechanism of corporate payout policy: A case of Indian firms

Signaling mechanism of corporate payout policy: A case of Indian firms

Finance Perspective versus Accounting Perspective: The Case of Earnings Persistence in Indonesia

On the Determinants of Dividends’ Information Content

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