Dividend Policy Of Listed Companies And The Permanence Of Earnings

There are a large number of listed companies which have profit even growth but pay no dividend to the investors in the Chinese capital market. To explain this phenomenon, the paper selected listed companies in Shanghai and Shenzhen Stock Exchange between 1998 and 2009 as samples, based on signaling theory, using the Skinner(2011) model to find out the relation between dividend policy and earnings persistence. The researches about this topic now mainly in the earnings response coefficients.Since Skinner's paper in 2009.the first order autoregressive model have been used.while the current studies about Chinese still less involved in the period after the reformation of the accounting system.In this paper, we use the modified model to study the sample of China,due to the reformation of the accounting system.The modification is on the definition of basic earnings, base on the decomposition ideas.Study found that modified model effectively proved the relation between the dividend policy and earnings persistence, that is the dividend policy reflect the sustainability of earnings, the companies which distribute dividends have more sustainable earnings.In the analysis of decomposition of the earnings structure, the results show that the basic earnings ratio of the companies that pay dividends is significantly higher than the companies which don't. And the cash earnings ratio of the companies that pay cash dividends is significantly higher than the companies which don't. The results also show that after the reformation of the accounting system in 2006, the structure of the earnings report has changed, if earnings persistence is strong, managers prefer to use dividend policy to send signals.When the managers choose the payout policy, they prefer to give both the cash and stock, but differ in each time periods.The contribution of this article is to define basic earnings and examine relationship between the dividend policy and the earnings persistence, to establish a more appropriate model. This paper also point out that dividend policy indicate the quality of basic earnings,warning investors do not be misled by the number of growth of overall earnings...