On the Informational Content of Dividends

Abstract

In his recent paper entitled Information Content of Dividends, Ross Watts set out to determine if dividends convey information about future earnings-information that enables market participants to predict future earnings more accurately.' Based on information presented in some of my work,2 his conclusion was that the dividend process should be specified on an annual basis and that, although there may be some informational content to dividends, the amount is trivial. The purpose of this paper is to express disagreement with both of these conclusions and to present evidence to support this contrary position.

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