Document Type : Research Paper

Authors

• Farokh Barzideh
• S.M. Borhani

Abstract

This study presents evidence on the validity of the dividend signaling hypothesis, by using a new testing approach. The main question in this paper is whether dividend is informative   about a firm’s future earnings.  We  examine this issue  by investigating   the association  between  current  year  stock  returns and  current  and  future  earning   for  firms  that  pay  dividends   in  the  current years  as compared   to firms  that  do not pay  dividends. The  analysis   of the data reveal  that relative  to non-dividend   paying  firms, dividend  paying  firms have  current  returns  that  are  more associated   with  future  earning . Overall, our results are consistent with dividends providing relevant   information about future earning to the market that this information affect stock price.

Keywords

• Dividend signaling hypothesis
• dividend per share (DPS)
• future earnings