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An Empirical Study of Dividend Payout and Future Earnings in Singapore

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  • Lee, King Fuei

Abstract

This paper applies Johansen’s vector error-correction model (VECM) to investigate for the existence of the dividend signalling effect in the Singapore aggregate market through impulse response analysis, forecast error variance decomposition and granger-causality test. Our findings show that a unit shock increase in dividend payout leads to a permanent increase in future earnings over time, thus supporting the existence of informational/signalling content in dividend payout in the Singapore market over the long run. We further find that at least half of the forecast error variance in earnings can be accounted for by innovations in the dividend payout, while the payout ratio is also shown to granger-cause earnings in the Singapore market.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23067.

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Date of creation: 2010
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Publication status: Forthcoming in Review of Pacific Basin Financial Markets and Policies 2.13(2010): pp. 267-286
Handle: RePEc:pra:mprapa:23067

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Keywords: Dividend payout; future earnings; dividend signalling; Singapore; impulse response function;

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  1. Lanne, Markku & Lütkepohl, Helmut & Saikkonen, Pentti, 2001. "Test procedures for unit roots in time series with level shifts at unknown time," SFB 373 Discussion Papers 2001,39, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Saikkonen, Pentti & L tkepohl, Helmut, 2002. "Testing For A Unit Root In A Time Series With A Level Shift At Unknown Time," Econometric Theory, Cambridge University Press, vol. 18(02), pages 313-348, April.
  3. Campbell, John Y & Shiller, Robert J, 1988. " Stock Prices, Earnings, and Expected Dividends," Journal of Finance, American Finance Association, vol. 43(3), pages 661-76, July.
  4. Kalay, Avner, 1980. "Signaling, Information Content, and the Reluctance to Cut Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(04), pages 855-869, November.
  5. Helmut Lütkepohl & Pentti Saikkonen & Carsten Trenkler, 2001. "Maximum eigenvalue versus trace tests for the cointegrating rank of a VAR process," Econometrics Journal, Royal Economic Society, vol. 4(2), pages 8.
  6. Jurgen A. Doornik, 1998. "Approximations To The Asymptotic Distributions Of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-593, December.
  7. repec:wop:humbsf:2001-39 is not listed on IDEAS
  8. Ball, Ray & Watts, Ross, 1972. "Some Time Series Properties of Accounting Income," Journal of Finance, American Finance Association, vol. 27(3), pages 663-81, June.
  9. Saikkonen, Pentti & L tkepohl, Helmut, 2000. "Testing For The Cointegrating Rank Of A Var Process With An Intercept," Econometric Theory, Cambridge University Press, vol. 16(03), pages 373-406, June.
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