Year 2016, Volume 15, Issue 4, Pages 1132 - 1145 2016-10-28

Asymmetric Information and Signaling Theory: Panel Causality Approach on the Relationship between Dividends and Earnings

Yunus Kılıç [1] , Mehmet Fatih Buğan [2] , B. Dilek Özbezek [3]

532 1497

It has been long debated how, with what methods, to what extent, and how much should the earnings obtained in companies be distributed so as to maximize the market value of companies. The extent of the dividends any company would distribute to its stakeholders undoubtedly depends on the profitability situation of the relevant period. However, the distributed dividends provide reliable information concerning the future earnings of the company. For this reason, the short- and long-time relationship between dividends and earnings should be evaluated in a bidirectional way. In this study, the relationship between dividends and earnings per share for the period between 1990 and 2014 has been studied using two different panel causality tests and the asymmetric-information-based signal effect has been analyzed for individual companies. As a result of the tests conducted, a weak causality relationship has been detected between changes in dividends and companies’ future earnings. Obtained findings have pointed out that, in most companies, earnings are more effective in identifying future dividends.

Signaling Theory, Earnings per Share, Dividends, Panel Causality Test
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Subjects Management
Journal Section Business

Author: Yunus Kılıç
Institution: Gaziantep Üniveristesi

Author: Mehmet Fatih Buğan
Institution: Gaziantep Üniveristesi

Author: B. Dilek Özbezek
Institution: Gaziantep Üniveristesi

APA Kılıç, Y , Buğan, M , Özbezek, B . (2016). Asymmetric Information and Signaling Theory: Panel Causality Approach on the Relationship between Dividends and Earnings. Gaziantep University Journal of Social Sciences, 15 (4), 1132-1145. DOI: 10.21547/jss.265502