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The Linkages between Dividends and Earnings

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  • Olson, Gerard T
  • McCann, P Douglas

Abstract

The purpose of this paper is to empirically test the linkages between dividends and earnings. Using the Granger test of statistical causality, it is found that some firms use dividends for signaling, some follow a residual policy, and some firms simultaneously signal and follow a residual policy. Segmenting firms according to dividend policy, the results indicate that firms that follow a residual or signaling dividend policy tend to have a higher growth in asset turnover, but a lower growth in revenues. Signaling firms also tend to be smaller, have higher variability in revenues, and use less debt through time. Copyright 1994 by MIT Press.

Suggested Citation

  • Olson, Gerard T & McCann, P Douglas, 1994. "The Linkages between Dividends and Earnings," The Financial Review, Eastern Finance Association, vol. 29(1), pages 1-22, February.
  • Handle: RePEc:bla:finrev:v:29:y:1994:i:1:p:1-22
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    Cited by:

    1. Baker, H. Kent & Smith, David M., 2006. "In search of a residual dividend policy," Review of Financial Economics, Elsevier, vol. 15(1), pages 1-18.
    2. Bechman, Ken L. & Raaballe, Johannes, 2006. "Taxable Cash Dividends," Working Papers 2005-4, Copenhagen Business School, Department of Finance.
    3. Syed Akif Shah & Umara Noreen, 2016. "Stock Price Volatility and Role of Dividend Policy: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 461-472.
    4. John Consler & Greg M. Lepak & Susan F. Havranek, 2011. "Earnings per share versus cash flow per share as predictor of dividends per share," Managerial Finance, Emerald Group Publishing, vol. 37(5), pages 482-488, April.

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