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Cash dividends, stock dividends and subsequent earnings growth

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  • Huang, Chin-Sheng
  • You, Chun-Fan
  • Lin, Szu-Hsien

Abstract

This study examines the association between dividend payout ratios and subsequent earnings growth using a unique dataset on Taiwanese firms paying dual dividends. The practice of paying dual dividends, which is quite common in Taiwan, gives rise to a novel 'balanced-dividend hypothesis' to be addressed in this study. The main thrusts of the hypothesis are that high cash-dividend payouts may reduce agency costs, and that high stock-dividend payouts provide a signal of optimism. The empirical evidence shows that a significant positive association between dividend payout ratios and subsequent earnings growth exists only in the dual-dividend payouts sample. After further dividing the whole sample according to their cash-to-stock ratios, the significantly positive association between dual-dividend payouts and subsequent earnings growth is discernible only in the balanced-dividend sub-samples.

Suggested Citation

  • Huang, Chin-Sheng & You, Chun-Fan & Lin, Szu-Hsien, 2009. "Cash dividends, stock dividends and subsequent earnings growth," Pacific-Basin Finance Journal, Elsevier, vol. 17(5), pages 594-610, November.
  • Handle: RePEc:eee:pacfin:v:17:y:2009:i:5:p:594-610
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    References listed on IDEAS

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    Cited by:

    1. Chin-Sheng Huang & Chun-Fan You & Hueh-Chen Lin, 2014. "Dividend-Yield Trading Strategies: Evidence from the Chinese Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 382-399.
    2. repec:wsi:rpbfmp:v:20:y:2017:i:01:n:s0219091517500023 is not listed on IDEAS

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