Download Free Are Dividend Changes A Signal Of Future Profitability Book in PDF and EPUB Free Download. You can read online Are Dividend Changes A Signal Of Future Profitability and write the review.

One of the most important predictions of the dividend-signaling hypothesis is that dividend changes are positively correlated with future changes in profitability and earnings. Contrary to this prediction, we show that after controlling for the well-known non-linear patterns in the behavior of earnings, dividend changes contain no information about future earnings changes. We also show that dividend changes are negatively correlated with future changes in profitability (return on assets). Finally, we investigate the out-of-sample forecasting ability of dividend changes. We find that models that include dividend changes do not outperform those that do not include dividend changes. In fact, our evidence indicates that investors are better off not using dividend changes in their earnings forecasting models.
We find that firms poised to experience large, permanent cash flow increases after four years of flat cash flow tend to boost their dividends before their cash flow jumps. These firms also have a high frequency of relatively large dividend increases prior to the cash flow shock. Investors appear to interpret the dividend changes as signals about future profitability: firms that sharply increase their dividends earn large market-adjusted stock returns in the year before their cash flow rises. This direct link between positive cash flow shocks, dividend decisions, and stock returns supports the hypothesis that dividend changes signal positive information about permanent future cash flow levels. However, our results also suggest that signaling plays a relatively minor role in corporate dividend policy.
We examine whether the market interprets changes in dividends as a signal about the persistence of past earnings changes. Prior to observing this signal, investors may believe that past earnings changes are not necessarily indicative of future earnings levels. We empirically investigate whether a change in dividends alters investors' assessments about the valuation implications of past earnings. Results confirm the hypothesis that changes in dividends cause investors to revise their expectations about the persistence of past earnings changes. This effect varies predictably with the magnitude of the dividend change and the sign of the past earnings change.
Dividends And Dividend Policy As part of the Robert W. Kolb Series in Finance, Dividends and Dividend Policy aims to be the essential guide to dividends and their impact on shareholder value. Issues concerning dividends and dividend policy have always posed challenges to both academics and professionals. While all the pieces to the dividend puzzle may not be in place yet, the information found here can help you gain a firm understanding of this dynamic discipline. Comprising twenty-eight chapters—contributed by both top academics and financial experts in the field—this well-rounded resource discusses everything from corporate dividend decisions to the role behavioral finance plays in dividend policy. Along the way, you'll gain valuable insights into the history, trends, and determinants of dividends and dividend policy, and discover the different approaches firms are taking when it comes to dividends. Whether you're a seasoned financial professional or just beginning your journey in the world of finance, having a firm understanding of the issues surrounding dividends and dividend policy is now more important than ever. With this book as your guide, you'll be prepared to make the most informed dividend-related decisions possible—even in the most challenging economic conditions. The Robert W. Kolb Series in Finance is an unparalleled source of information dedicated to the most important issues in modern finance. Each book focuses on a specific topic in the field of finance and contains contributed chapters from both respected academics and experienced financial professionals.
This thesis examines the relation between dividend changes and future profitability in respect of the degree of information asymmetry faced by U.S. firms during 1990 to 2013. As the information asymmetry is the theoretical incentive for firms to signal via dividends, firms with a high level of information asymmetry should be those that have the most incentives in taking such action. Contrary to this prediction, no conclusive evidence is found to support such hypothesis. Specifically, the results tend towards suggesting no evidence of dividend signaling. Additionally, the lack of the significance when testing the difference between high and low asymmetry firms greatly indicates that the difference in the level of asymmetry faced by firms has no impact on their decision to use dividend signaling. Hence, the findings of this thesis taken together suggest that dividends contain no information of future profitability, and plausibly that dividends are not the common means of signaling.
The stylized facts that firms pay and investors react to dividends disregard dividend neutrality. Taking on the perspective that informational asymmetries are the central determinant for dividend value relevance, Christian Müller assumes that firm’s dividend decision conveys useful information to investors. He shows that investors use dividend changes to revise their a priori expectations about the persistence of a current earnings change. While his theoretical and empirical analyses generally imply that dividend changes constitute informative, but imperfect information signals, he further identifies situations in which they are substantial to investors. Christian Müller’s research comprehensively examines the informational role of dividend policy and provides new insights to the corresponding Bayesian investor learning process.
We investigate the relation between dividend changes and future profitability, measured in terms of either future earnings or future abnormal earnings. Supporting quot;the information content of dividends hypothesis,quot; we find that dividend changes provide information about the level of profitability in subsequent years, incremental to market and accounting data. We also document that dividend changes are positively related to earnings changes in each of the two years after the dividend change.