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Do liquidity induced changes in aggregate dividends signal aggregate future earnings growth?

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Abstract

Extant empirical literature does not provide abundant evidence for the information content hypothesis regarding firm-level dividend signaling. Although this is consistent with the argument against an optimal firm-level dividend policy, this does not imply an absence of an optimal aggregate dividend level. Aggregate dividends and earnings may exhibit stronger associations if aggregation filters out firm-specific earnings information and indicates macroeconomic trends. Using macroeconomic data, we show that aggregate payout ratios signal aggregate future earnings growth for horizons up to 4 years, and that excess aggregate liquidity plays an important role in this relationship.

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Notes

  1. Please refer to Lo and MacKinley (1988) for variance ratio computations.

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Authors and Affiliations

  1. Department of Finance, COB, University of Tennessee-Chattanooga, 615 McCallie Avenue, Chattanooga, TN, 37403, USA

    Christi Wann & D. Michael Long

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  1. Christi Wann
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  2. D. Michael Long
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Correspondence to Christi Wann.

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Wann, C., Long, D.M. Do liquidity induced changes in aggregate dividends signal aggregate future earnings growth?. J Econ Finance 33, 1–12 (2009). https://doi.org/10.1007/s12197-007-9020-4

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  • DOI: https://doi.org/10.1007/s12197-007-9020-4

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