Dividend Changes, Profitability and Earnings - a Study of Indian Manufacturing Firms

37 Pages Posted: 22 Feb 2005

See all articles by Jijo Lukose

Jijo Lukose

Indian Institute of Management Kozhikode

Narayan Rao Sapar

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM)

Date Written: Septemeber 2004

Abstract

We observe significant valuation revisions around divined changes. The price reaction to dividend initiations and omissions are more compared to the dividend increase/decrease sample. We analyze the relationship between dividend changes and future profitability/earnings using categorical analysis and regression analysis. There is a strong relationship between the dividend changes and earnings/profitability changes for the corresponding year. Dividend initiating (omitting) firms have large increase (decrease) in profitability in the year of change compared to dividend increasing (decreasing) firms. We found that dividend changes provide information about the level and change in profitability in the immediately succeeding year, but not thereafter. The availability of financial results for the next quarter/half year may discount the signaling argument as a valid explanation. Generally positive dividend changes are associated with somewhat permanent increase in earnings in the year of announcements.

Keywords: Dividend, signaling, earnings, profitability

JEL Classification: G35, M41

Suggested Citation

Lukose P. J., Jijo and Sapar, Narayan Rao, Dividend Changes, Profitability and Earnings - a Study of Indian Manufacturing Firms (Septemeber 2004). Available at SSRN: https://ssrn.com/abstract=669461 or http://dx.doi.org/10.2139/ssrn.669461

Jijo Lukose P. J. (Contact Author)

Indian Institute of Management Kozhikode ( email )

IIMK Kozhikode
Kozhikode, Kerala, India,
KOZHIKODE, KY XXXXXX
India
+91-9497208290 (Phone)
+91-44-2827 9208 (Fax)

Narayan Rao Sapar

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM) ( email )

Powai
Mumbai 400076
India
+91-22-2576 7744 (Phone)
+91-22-2572 2872 (Fax)

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