What do dividends tell us about earnings quality?

What do dividends tell us about earnings quality? Over the past 30 years, there have been significant changes in the distribution of earnings—cross-sectional variation has increased, with increasing left skewness—as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of other firms and that this relation is remarkably stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. These results do not hold as strongly for stock repurchases, consistent with them representing less of a commitment than dividends. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

What do dividends tell us about earnings quality?

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-009-9113-8
Publisher site
See Article on Publisher Site

Abstract

Over the past 30 years, there have been significant changes in the distribution of earnings—cross-sectional variation has increased, with increasing left skewness—as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend-paying firms are more persistent than those of other firms and that this relation is remarkably stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. These results do not hold as strongly for stock repurchases, consistent with them representing less of a commitment than dividends.

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 25, 2009

References

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