Dividend Omissions and Forecasts of Future Earnings: Some Positive Evidence on Information Content of Dividends

Posted: 26 Aug 1999

See all articles by Mukesh Bajaj

Mukesh Bajaj

LECG, LLC; University of California, Berkeley - Haas School of Business

Date Written: August 1994

Abstract

We find that dividend-omitting firms suffer a greater drop in short-term and long-term forecasts of future earnings than their industry average. Earnings and dividend announcements are substitute signals of short- term earnings prospects - after controlling for recent earnings announcements, dividend omissions do not provide incremental information about short-term earnings expectations. Even after controlling for contemporaneous earnings and other announcements, however, omissions provide incremental information about long-term earnings forecasts. Our findings support Miller and Modigliani's [1961] information content hypothesis that while dividend omissions are associated with short-term earnings downturns, they convey incremental information about "permanent" earnings prospects.

JEL Classification: G32

Suggested Citation

Bajaj, Mukesh, Dividend Omissions and Forecasts of Future Earnings: Some Positive Evidence on Information Content of Dividends (August 1994). Available at SSRN: https://ssrn.com/abstract=5524

Mukesh Bajaj (Contact Author)

LECG, LLC ( email )

2000 Powell Street, Suite 600
Emeryville, CA 94608
United States
510-450-6736 (Phone)

University of California, Berkeley - Haas School of Business

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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