The Earnings Information Content of Dividend Initiations and Omissions
Previous studies have found that dividend initiations and omissions convey important information about subsequent earnings changes. However, this finding may be subject to a sample survival bias. We find that survivorship does not affect the positive relation between dividend changes and past earnings changes. Also, we find dividend omitting firms are able to generate significantly positive earnings one to two years after the omission. However, contrary to previous findings, firms' earnings are not significantly increased following the dividend initiation. The results suggest that survivorship tends to bias inference toward finding that dividends signal future earnings.
Journal of Business Finance and Accounting
WU, Chunchi and Ho, K..
The Earnings Information Content of Dividend Initiations and Omissions. (2001). Journal of Business Finance and Accounting. 28, (7&8), 963-977. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/795