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An Empirical Study of Dividend Payout and Future Earnings in Singapore

  • King Fuei Lee

    ()

    (Schroder Investment Management, 65 Chulia Street #46-00, OCBC Centre, Singapore 049513, Singapore)

The main purpose of this paper is to apply Johansen's vector error-correction model (VECM) to investigate 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. These results imply that there exists 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. In addition, the payout ratio is also shown to Granger-cause earnings in the Singapore market.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

Volume (Year): 13 (2010)
Issue (Month): 02 ()
Pages: 267-286

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Handle: RePEc:wsi:rpbfmp:v:13:y:2010:i:02:p:267-286
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  1. 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.
  2. Saikkonen, Pentti & Lütkepohl, Helmut, 1998. "Testing for the cointegrating rank of a VAR process with an intercept," SFB 373 Discussion Papers 1998,51, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  3. 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.
  4. Campbell, John & Shiller, Robert, 1988. "Stock Prices, Earnings, and Expected Dividends," Scholarly Articles 3224293, Harvard University Department of Economics.
  5. 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.
  6. 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.
  7. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-93, December.
  8. Lütkepohl, Helmut & Saikkonen, Pentti & Trenkler, Carsten, 2000. "Maximum eigenvalue versus trace tests for the cointegrating rank of a VAR process," SFB 373 Discussion Papers 2000,83, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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