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A Comparison of Earnings Per Share and Dividends Per Share as Explanatory Variables for Share Price

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  • C J Auret
  • J U de Villiers

Abstract

This paper compares the explanatory power of earnings per share (EPS) and dividends per share (DPS) in explaining share prices. We follow a procedure developed by Demsetz (1995) in which he estimates multiple linear regressions with share price as the dependent variable and contemporaneous EPS, leading EPS and lagged EPS as explanatory variables. We replicate this study using South African EPS data, and then repeat the calculations using South African DPS data as the explanatory variables. We find that EPS has more explanatory power than DPS. Our analysis shows that accounting earnings are interpreted as meaningful by investors. It is therefore appropriate to focus on earnings in share analysis.

Suggested Citation

  • C J Auret & J U de Villiers, 2000. "A Comparison of Earnings Per Share and Dividends Per Share as Explanatory Variables for Share Price," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 24(1), pages 39-53, March.
    • Handle: RePEc:taf:rseexx:v:24:y:2000:i:1:p:39-53
    DOI: 10.1080/03796205.2000.12129264
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    Cited by:

    1. Krishnamoorthy Charith & Andrey Davydenko, 2021. "Informational Value of Dividend Initiations: Impact of Cash Dividends on Share Prices of Manufacturing Companies in Sri Lanka," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(3), pages 1-13, March.
    2. Charith, Krishnamoorthy & Davydenko, Andrey, 2021. "Informational Value of Dividend Initiations: Impact of Cash Dividends on Share Prices of Manufacturing Companies in Sri Lanka," SocArXiv jqnt4, Center for Open Science.
    3. Andrey Davydenko & Krishnamoorthy Charith, 2021. "Informationswert von Dividendenausschüttungen: Einfluss von Bardividenden auf die Aktienkurse von produzierenden Unternehmen in Sri Lanka [Informational value of dividend initiations: Impact of cas," Post-Print hal-03359177, HAL.
    4. Brian Basvi, 2024. "Evaluating the Effect of Fundamental Analysis on Earnings Per Share Concept in Stock Valuation in the Zimbabwe Stock Exchange Market," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 11(5), pages 531-550, May.

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