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An Empirical Study of Dividend Payout and Future Earnings in Singapore

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  • Lee, King Fuei

Abstract

This paper applies Johansen’s vector error-correction model (VECM) to investigate for the existence of the dividend signalling effect in the Singapore aggregate market through impulse response analysis, forecast error variance decomposition and granger-causality test. Our findings show that a unit shock increase in dividend payout leads to a permanent increase in future earnings over time, thus supporting the existence of informational/signalling content in dividend payout in the Singapore market over the long run. We further find that at least half of the forecast error variance in earnings can be accounted for by innovations in the dividend payout, while the payout ratio is also shown to granger-cause earnings in the Singapore market.

Suggested Citation

  • Lee, King Fuei, 2010. "An Empirical Study of Dividend Payout and Future Earnings in Singapore," MPRA Paper 23067, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:23067
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    References listed on IDEAS

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    1. Markku Lanne & Helmut Lütkepohl & Pentti Saikkonen, 2003. "Test Procedures for Unit Roots in Time Series with Level Shifts at Unknown Time," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(1), pages 91-115, February.
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    5. Kalay, Avner, 1980. "Signaling, Information Content, and the Reluctance to Cut Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(4), pages 855-869, November.
    6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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    10. Benartzi, Shlomo & Michaely, Roni & Thaler, Richard H, 1997. "Do Changes in Dividends Signal the Future or the Past?," Journal of Finance, American Finance Association, vol. 52(3), pages 1007-1034, July.
    11. Markku Lanne & Helmut Lütkepohl & Pentti Saikkonen, 2002. "Comparison of unit root tests for time series with level shifts," Journal of Time Series Analysis, Wiley Blackwell, vol. 23(6), pages 667-685, November.
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    13. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
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    15. Kao, Chihwa & Wu, Chunchi, 1994. "Rational Expectations, Information Signalling and Dividend Adjustment to Permanent Earnings," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 490-502, August.
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    Cited by:

    1. Małgorzata Snarska & Tomasz K. Wisniewski & Andrzej Zygula, 2020. "Are Emerging Markets Efficient? Evidence from Informational Content of Dividend Changes in Polish Stock Market," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 687-717.
    2. Xin Che & Kathleen P. Fuller, 2020. "What does the timing of dividend reductions signal?," Review of Quantitative Finance and Accounting, Springer, vol. 55(3), pages 1035-1061, October.
    3. Chin-Sheng Huang & Chun-Fan You & Hsiao-Fen Hsiao, 2017. "Dividends and Subsequent Profitability: An Examination of a Dual Dividend Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-35, March.
    4. James Juichia Lin & Cheng-Few Lee, 2021. "Does managerial reluctance of dividend cuts signal future earnings?," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 453-478, February.
    5. Chin-Chen Chien & Cheng-Few Lee & She Chih Chiu, 2016. "Does Corporate Governance Curb Managers’ Opportunistic Behavior of Exploiting Inside Information for Early Exercise of Executive Stock Options?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-22, March.
    6. Naheed Rabbani, 2017. "The Announcement Effect of Cash Dividend Changes on Share Prices: Evidence from Dhaka Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-19, December.

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    More about this item

    Keywords

    Dividend payout; future earnings; dividend signalling; Singapore; impulse response function;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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