Abstract

This study analyzed the effect of dividends on the information effect of future earnings. This study establishes hypothesis 1 that dividend payers will have higher value relevance of future earnings than non－dividend payers, and hypothesis 2 that persistent dividend payers will have higher value relevance of future earnings than non－persistent dividend payers. For the empirical test model, Tucker and Zarowin(2006)’s FERC(Future Earnings Response Coefficient) model is used, and variables related to dividends are measured as dummy variables. As a result of empirical test, it is found that dividend payers have higher value relevance of future earnings than non－dividend payers. Also, it is found that persistent dividend payers have higher value relevance of future earnings than non－persistent dividend payers. These results suggest that dividends act as a factor that increases the value relevance of future earnings. This is found to be consistent even when controlling the quality of earnings. An addtional test is conducted on the relationship between dividends and the value relevance of future earnings by dividing the sample into positive net income and negative net income. In the group with positive net income, dividends are found to increase the value relevance of future earnings. However, in the group with negative net income, dividends are found to have no additional effect on the value relevance of future earnings. Taken together, these results suggest that dividends show the information effect of dividends based on the profitability of individual companies. This study has a contribution that it tests how dividends are related to the value relevance of future earnings. In other words, this study has implications in that the information effect on the future management performance of dividends is verified through stock prices. In addition, this study is considered to have practical contributions in that it presents data that the value relevance of future earnings can differ depending on the type of dividend payment.

Keywords

• Dividend
• Value Relevance of Future Earnings
• Future Earnings Response Coefficient(FERC)

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