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Cash dividends, stock dividends and subsequent earnings growth

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

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    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 17 (2009)
    Issue (Month): 5 (November)
    Pages: 594-610

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    Handle: RePEc:eee:pacfin:v:17:y:2009:i:5:p:594-610
    Contact details of provider: Web page: http://www.elsevier.com/locate/pacfin

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