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Earnings, Working Capital and Dividend Payout: Evidence from the London Stock Exchange

Author

Listed:
  • Duo Xu

    (Department of Accounting Business College, Jiaxing University)

  • Christopher Gan

    (Department of Financial and Business Systems, Faculty of Agribusiness and Commerce, Lincoln University)

  • Zhaohua Li

    (Department of Financial and Business Systems, Faculty of Agribusiness and Commerce, Lincoln University)

  • Pengcheng Wang

    (College of Economics and Management, China Agricultural University)

Abstract

This paper examines the impacts of the earnings and working capital on the dividend payout, using firms listed on the London Stock Exchange from 1991 to 2015. The results reveal that unadjusted earnings have a positive and significant impact on firms' dividend payout, whereas the dividend-adjusted earnings are insignificant in explaining firms' dividend payout. Moreover, we find that there exists an "inverse U-shape" relationship between the working capital and dividend payout. Our findings provide more coherent evidence between the earnings and dividend payout and highlight the importance of considering working capital as a determinant in designing corporate dividend payout policy.

Suggested Citation

  • Duo Xu & Christopher Gan & Zhaohua Li & Pengcheng Wang, 2021. "Earnings, Working Capital and Dividend Payout: Evidence from the London Stock Exchange," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 421-449, November.
    • Handle: RePEc:cuf:journl:y:2021:v:22:i:2:xuganliwang
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    More about this item

    Keywords

    Dividend Payout; Earnings; Working Capital; Inverse U-shape Relationship;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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