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Dividend Changes and the Persistence of Past Earnings Changes
Author(s) -
KOCH ADAM S.,
SUN AMY X.
Publication year - 2004
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2004.00693.x
Subject(s) - dividend , earnings , economics , valuation (finance) , dividend payout ratio , persistence (discontinuity) , monetary economics , financial economics , dividend policy , accounting , finance , geotechnical engineering , engineering
We examine whether the market interprets changes in dividends as a signal about the persistence of past earnings changes. Prior to observing this signal, investors may believe that past earnings changes are not necessarily indicative of future earnings levels. We empirically investigate whether a change in dividends alters investors' assessments about the valuation implications of past earnings. Results confirm the hypothesis that changes in dividends cause investors to revise their expectations about the persistence of past earnings changes. This effect varies predictably with the magnitude of the dividend change and the sign of the past earnings change.