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  • March 2011
  • Article
  • Review of Accounting Studies

What Do Dividends Tell Us About Earnings Quality

By: Douglas Skinner and Eugene F. Soltes
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Abstract

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.

Keywords

Distribution; Business Earnings; Change; Policy; Stocks; Investment Return; Performance Consistency; Quality

Citation

Skinner, Douglas, and Eugene F. Soltes. "What Do Dividends Tell Us About Earnings Quality." Review of Accounting Studies 16, no. 1 (March 2011).
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About The Author

Eugene F. Soltes

Accounting and Management
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  • Corporate Criminal Investigations and Prosecutions By: Leo R. Tsao, Daniel S. Kahn and Eugene F. Soltes
  • Should I Stay or Should I Go? Assessing Risk in Carlos Ghosn's International Escape By: Eugene F. Soltes, Grace Liu and Muneeb Ahmed
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