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Dividend policy and earnings: a study of short- and long-term causality

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  • Mukesh K. Chaudhry
  • Robert J. Boldin
  • Ibrahim Affaneh
  • Geoffrey Tickell

Abstract

This research examines whether earnings per share (EPS) and dividends per share (DPS) exhibit a short and long causality. The data employed in this study consist of quarterly EPS and DPS for 28 of the DJIA companies obtained from Bloomberg over a recent 10-year period. The companies under investigation all have EPS and DPS data available over the period studied. Dividends are generally paid out of earnings. The amount and timing of the dividend paid is a function of the respective company's dividend policy. Therefore, the EPS t can be expressed in terms of the DPS t as follows: EPS t = α DPS t where α is a nonnegative constant. The equation suggests that there is a linear relationship between the EPS t and the DPS t . The results of this study indicate that bi-directional causality exists for some of the companies.

Suggested Citation

  • Mukesh K. Chaudhry & Robert J. Boldin & Ibrahim Affaneh & Geoffrey Tickell, 2015. "Dividend policy and earnings: a study of short- and long-term causality," Applied Economics, Taylor & Francis Journals, vol. 47(50), pages 5445-5459, October.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:50:p:5445-5459
    DOI: 10.1080/00036846.2015.1049337
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    1. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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