| Review of Accounting Studies
What Do Dividends Tell Us About Earnings Quality
Over the past 30 years, there have been significant changes in the distribution of earnings (cross-sectional variation has increased, with increasing left skewness) as well as in corporate payout policy, with many fewer firms paying dividends and the emergence of stock repurchases. We investigate whether the informativeness of payout policy with respect to earnings quality changes over this period. We find that the reported earnings of dividend paying firms are more persistent than those of other firms, and that this relation is stable over time. We also find that dividend payers are less likely to report losses and those losses that they do report tend to be transitory losses driven by special items. Overall, the evidence shows that dividends are consistently informative with respect to earnings quality. These results do not hold as strongly for stock repurchases, consistent with repurchases representing less of a commitment.