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A Panel Analysis of the Impact of Dividend per Share, Dividend Changes and Dividend Payout Ratio on Companies Performance: An Empirical Test of ``the Dividend Signaling Hypothesis"

Author

Listed:
  • Mpinda F. Mvita

    (Department of Economics, University of Pretoria, South Africa)

  • Goodness C. Aye

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

Abstract

The goal of this paper is to examine the dividend behaviour, as well as to test the dividend signalling hypothesis among South African companies listed on the JSE. The signalling hypothesis predicts that changes in dividend pay-out act as signals of the future performance of the company. To test this, the relation between dividend per share, dividend changes and dividend pay-out ratio with earnings per share and future changes in earnings growth was examined. Panel data estimation techniques are applied to a sample of 31 listed companies on the JSE over the time period 1990-2015. The results of the analysis provide consistent support for the predictions of the dividend signalling hypothesis. The analysis under pay-out and earnings growth suggest that the pay-out ratio is positively and significantly related to the expected future earnings growth for the individual companies listed on the Johannesburg securities exchange. The dividend per share and the change in dividend per share are also positively and significantly related to earnings per share and future earnings growth respectively.

Suggested Citation

  • Mpinda F. Mvita & Goodness C. Aye, 2017. "A Panel Analysis of the Impact of Dividend per Share, Dividend Changes and Dividend Payout Ratio on Companies Performance: An Empirical Test of ``the Dividend Signaling Hypothesis"," Working Papers 201723, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201723
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    More about this item

    Keywords

    Earnings per share; earnings growth; dividend per share; dividend pay-out ratio; Panel data;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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