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Management Forecasting Ability and Predictive Ability of Dividend Changes for Future Earnings
Journal article   Peer reviewed

Management Forecasting Ability and Predictive Ability of Dividend Changes for Future Earnings

Hsihui Chang, Souhei Ishida and Takuma Kochiyama
Journal of accounting, auditing & finance, p148558
11 Dec 2021
DOI: https://doi.org/10.1177/0148558X211063247

Abstract

Business & Economics Business, Finance Social Sciences
We revisit the predictive ability of dividend changes for firms' future earnings and extend the literature by examining the effect of management forecasting ability. Although prior studies have examined the relationship between dividend changes and future earnings, the empirical evidence is mixed. The belief that dividend changes have implications for future earnings depends on the assumption that managers can accurately assess future earnings prospects. In this regard, we posit that the predictive ability of dividends can vary with managers' forecasting ability. Analyzing a large sample of Japanese dividend-paying firms, we find that dividend changes, particularly dividend increases, are positively associated with increases in future earnings. Consistent with our hypothesis, this positive association is more pronounced for firms with high-forecasting ability managers. Our findings support the signaling theory of dividend changes and indicate that management forecasting ability has a moderating effect on the linkage between firms' dividend changes and future earnings.

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14 Record Views
5 citations in Web of Science
6 citations in Scopus

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Collaboration types
Domestic collaboration
International collaboration
Web of Science research areas
Business, Finance
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