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Do dividends signal information about future earnings?

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  • Khaled Hussainey

Abstract

This article aims to examine the extent to which dividends signal information about future earnings. It examines the effects of dividend payment status and the change in dividend payment on the relation between current stock returns and future earnings. The results show that dividends contain value relevant information about future earnings and that this information is incorporated into current stock returns. In particular, we find that firms that pay dividends at the current year exhibit higher levels of share price anticipation of earnings than nondividend-paying firms. We also find that the change in dividends is positively related to changes in the importance of future earnings news for current stock returns. Finally, we find that the relevance of dividends for forecasting future earnings is greater for loss-making firms than for profitable firms.

Suggested Citation

  • Khaled Hussainey, 2009. "Do dividends signal information about future earnings?," Applied Economics Letters, Taylor & Francis Journals, vol. 16(12), pages 1285-1288.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:12:p:1285-1288
    DOI: 10.1080/17446540802403635
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    Cited by:

    1. Eyup Kadioglu & Nurcan Ocal, 2016. "Dividend Changes and Future Profitability: Evidence from the Turkish Stock Market," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 196-205, March.
    2. Khaled Hussainey & Jinan Aal-Eisa, 2009. "Disclosure and dividend signalling when sustained earnings growth declines," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(5), pages 445-454, May.

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