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Dividend signalling and investor protection: An international comparison

Author

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  • Deng, Xiaotong
  • De Groote, Sander
  • Kevin Li, Chao

Abstract

This study examines whether dividend changes signal future earnings growth in non-US markets following the Ham et al. (2020) methodology and whether the strength of the earnings signal varies with the level of investor protection. Based on the notion that weak investor protection reduces the cost of cutting dividends and as such increases managers’ discretion to change dividends, we expect that the strength of the earnings signal in dividend increases becomes weaker as investor protection decreases. In a sample drawn from 38 different markets, our results indicate while dividends can signal future earnings in non-US markets, the strength of the signal is weaker than that in the US. In line with our predictions, we find that for firms in a strong investor protection environment, dividend changes are correlated more strongly with subsequent earning changes than is the case for firms in weak investor protection environments.

Suggested Citation

  • Deng, Xiaotong & De Groote, Sander & Kevin Li, Chao, 2024. "Dividend signalling and investor protection: An international comparison," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(3).
    • Handle: RePEc:eee:jocaae:v:20:y:2024:i:3:s1815566924000419
    DOI: 10.1016/j.jcae.2024.100441
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    More about this item

    Keywords

    Dividends; Signaling; Investor protection;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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