Open AccessHistoric income versus inflation-adjusted income in the dividend decision
Author(s) -
Du Plessis,
A. A. Archer,
J. F. Affleck-Graves
Publication year - 1986
Publication title -
south african journal of business management
Language(s) - English
Resource type - Journals
eISSN - 2078-5976
pISSN - 2078-5585
DOI - 10.4102/sajbm.v17i3.1044
Subject(s) - dividend , earnings , dividend policy , economics , explanatory power , inflation (cosmology) , econometrics , value (mathematics) , net income , control (management) , financial economics , accounting , finance , statistics , mathematics , philosophy , physics , management , epistemology , theoretical physics
An attempt is made to determine to what extent companies take into account the effects of inflation in formulating their dividend decisions. The research design incorporates a two-stage regression approach which permits a determination of the incremental explanatory power of collinear variables. The research findings suggest that dividend decisions are best explained in terms of historic earnings. It therefore appears as if management does not take the effects of inflation into account in formulating dividend policy. This could have serious implications for the survival of a company because it could result in a real dividend cover of less than one.