Dividend changes as predictors of future earnings

Abstract

This paper analyses the relationship between changes in dividends and unexpected earnings of public companies exchanged in Northern Europe using dividend change data from 2008 to 2017. This study finds that dividend changes in year 0 are positively correlated with earnings changes in year 0, but for the following two years the correlation with earnings is either insignificant or negative under different methods. The findings are inconsistent with dividend signalling theories but stay robust under different specifications, suggesting that dividend changes cannot reliably be used to predict changes in companies’ future earnings.