engleski

Dividends-Lagging indicator of companies business?

According to the dividend signaling model, dividend increase conveys good news and dividend decrease conveys bad news about the firm’s future. In accordance with dividend signaling model, dividends reduce information asymmetry by acting as a trustworthy signal from corporate insiders to the company’s shareholders. Some studies find a positive relationship between dividend and future earnings changes, while others report a very weak positive relationship, no relationship or a negative relationship between dividend and future earnings changes. On the other hand, there is evidence that describes dividends as a lagging rather than a leading indicator of earnings. The purpose of this paper is to investigate if there are statistically significant differences in specific financial ratios between companies who have increased the dividend and companies who have decreased the dividend. The research will try to determine if the financial results of the companies that have increased the dividend were superior prior to the dividend increase confronted with the companies that have decreased the dividend. If there is statistically significant difference in financial ratios between the companies that have decreased and those that have increased the dividend, we can distinguish what financial ratios are important and, based on those financial ratios, we can make assumptions about the company’s intention to increase or decrease its dividend.

dividends, signaling, information asymmetry, financial ratios

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