Do firms use dividend changes to signal future profitability? A simultaneous equation analysis

Liu, Chinpiao; Chen, An-Sing

doi:10.1016/j.irfa.2014.12.001

Cited by 25 publications

(21 citation statements)

References 57 publications

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“…However, their results show that dividend changes have no significant ability to predict equity-scaled earnings changes, which are subject to firm capital structure decisions, due to the noise induced by the motives other than the prospects of signalling. Liu and Chen (2015) conclude that if investors constantly cannot recognise the signalling purpose and do not consider dividend changes useful devices in predicting future earnings prospects, managers may at some point stop using dividend changes to signal their asymmetric information about firm earnings performances. Table 1 summarises the empirical studies of the signalling theory of dividends that are reviewed here.…”

Section: Studies Of the Information Content Of Dividends Hypothesismentioning

confidence: 99%

What do we know about the dividend puzzle? – A literature survey

Al‐Najjar

Kılınçarslan

2019

IJMF

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This paper aims to shed light on the ongoing debate of dividend policy, which is considered one of the most controversial topics in corporate finance literature. We, first, outline the main theoretical arguments of dividend policy and then critically discuss the most important and influential previous empirical studies in the dividend literature. We detect that no general consensus has yet been reached after many decades of investigation, despite extensive debate and countless research. Consequently, the main motivation for paying dividends is still unsolved and thus remains as a puzzle. In addition, there is no doubt that carrying the dividend debate into the context of emerging markets attaches more pieces to this puzzle.

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Section: Studies Of the Information Content Of Dividends Hypothesismentioning

confidence: 99%

What do we know about the dividend puzzle? – A literature survey

Al‐Najjar

Kılınçarslan

2019

IJMF

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“…Therefore, the authors, by modifying the Benartzi et al (1997) model in their research as a measure of future financial results, used the ratio of the difference between net profit in the year and the level of net profit in the year t − 1 about the book value of equity in the year t − 1. In later years, this indicator, as a dependent variable in the analyzed model, was also used by Grullon et al (2005), Choi et al (2011), Kadioglu and Ocal (2016), Liu and Chen (2015), Vieira and Raposo (2007). Based on the examples cited in this article, a general hypothesis (H2) was formulated, according to which: H2: Dividend changes signal the future company's financial standing i.e.…”

Section: Methodological Framework and Testable Hypothesesmentioning

confidence: 99%

Are Emerging Markets Efficient? Evidence from Informational Content of Dividend Changes in Polish Stock Market

Snarska¹,

Tomasz²,

Zyguła³

2020

ERSJ

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Purpose: The objective of this paper is to present the dividend signaling hypothesis, in particular, an empirical analysis of the relationship between the current changes in the level of a dividend paid (t0) and the future profitability of the companies. Design/Methodology/Approach: The dividend signaling hypothesis is empirically tested using the dynamic causality analysis based on the regression approach monitoring for expected earnings changes and past returns with a set of linear and non-linear controls. The conducted analyses comprised the domestic companies quoted on the Warsaw Stock Exchange, which paid dividends in 2001-2016. Findings: The empirical results confirm that in the audited period, dividend decisions bring some information about the current situation (t = 0) and future (t = 1, t = 2) of the analyzed companies. It is also worth noting that among the analyzed indicators, the gross profit ratio (PBT) referred either to the market value or the book value of equity was most often in the statistically significant analyzes. In general, our results confirm the validity of the signaling hypothesis in the case of continuation-growth and initiation of payments in the Polish capital market as in the developed market. Practical Implications: We can say that investors, based on "signals" coming out of dividends advertisements, may conclude the future-income potential of a given company. Originality/value: As mentioned, the gross profit ratio (PBT) referred either to the market value or the book value of equity was most often in the statistically significant analyses. Thus, it seems that, contrary to the adopted assumptions in the literature, gross profit (PBT) in dividend signaling is more important than net profit (E).

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“…In line with this viewpoint, Fairchild (2010) reinforced the signalling hypothesis that the dividend may provide a signal of current earnings to investors and affect the ability of the firm when investing in new projects. Furthermore, Liu and Chen (2015) indicated that managers change dividends for signalling future equity-scaled earnings changes.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

Determinants of Dividend Payout Policy in Emerging Markets: Evidence from the ASEAN Region

Nguyễn

Tran

2019

Asian Economic and Financial Review

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This study examines the determinants of dividend payout policy by analyzing the behavior of 226 nonfinancial firms in three emerging markets in the ASEAN region from 2012 to 2016. The OLS regression model is employed to investigate the impacts of firms' characteristics and countries' factor on dividend payout decisions. The results show that the dividend payout is positively related with profitability. In contrast, growth opportunity has a negative effect on dividend payout. Other factors such as firm size, free cash flow, financial leverage and liquidity have little or no significant relationships with dividend payout decisions. A further contribution of this research is that it considers the impact of law on firms and their investor relationships. The results from this analysis reveal that firms in countries with higher investor protection tend to pay more dividends. Contribution/ Originality: This research has examined the impact of determinants on dividend payouts. OLS is used in this study. We found that profitability is positively related with dividend payouts but that growth opportunity has a negative effect. Other determinants such as firm size, free cash flow, financial leverage and liquidity have little or no significant relationships with dividend payouts.

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Do firms use dividend changes to signal future profitability? A simultaneous equation analysis

Cited by 25 publications

References 57 publications

What do we know about the dividend puzzle? – A literature survey

What do we know about the dividend puzzle? – A literature survey

Are Emerging Markets Efficient? Evidence from Informational Content of Dividend Changes in Polish Stock Market

Determinants of Dividend Payout Policy in Emerging Markets: Evidence from the ASEAN Region

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