Premium
The Impact of Dividends, Debt and Investment on Valuation Models
Author(s) -
Rees William P.
Publication year - 1997
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00154
Subject(s) - dividend , equity value , economics , earnings , capital structure , return on equity , equity (law) , return on capital , valuation (finance) , debt , financial economics , monetary economics , book value , cost of capital , equity capital markets , finance , external debt , stock exchange , financial capital , microeconomics , capital formation , debt levels and flows , profit (economics) , political science , law
The reliability of a basic earnings and equity model of value is tested using 8,287 cases drawn from UK industrial and commercial firms reporting during 1987–1995. A respecification of this model is used to investigate the value relevance of dividends, capital structure and capital expenditure. Both the dividend and capital expenditure signals appear to be significant and the impact of the former is surprisingly strong. There is no convincing evidence that equity value is affected by the level of debt. Further investigation of dividends confirms that they are less influential in large firms or in firms with high return on equity.