Finance academic activity Essay Example | Topics and Well Written Essays - 750 words

Finance academic activity - Essay Example prices of the stocks, there should be also be subsequent changes in the earnings of the company to mark this change in the dividend payout (Chen, 2005). There should also be a revision in the expectations of the market in regards to future earnings that is in the same direction as the change in anticipated dividends. This can be observed in companies across the globe especially in developed markets such as Europe and North America. In this case the earnings of the company can be termed as the average cumulative abnormal return and there will be various samples that will be used for this test. There was a change in the performance in the company after the announcement of the changes in the dividend policy. It was clear that companies that reported an anticipated increase in their dividends reported a return a positive change in their earnings for that year. On the other hand, companies that reported a decrease in their dividends reported lower earnings in that particular year. This can be due to the fact that there was a motivation for the company stakeholders to increase the business operations of the firm as they believe that they are the ones who will benefit from this. Dividend policy may have a predictive power on the future of businesses and these changes have to be closely monitored. Using the stated methods, there has been no relationship that has been established between the dividends and changes in the earnings. Changes in the dividends were not found to have any information about the future one and two year earnings growth.This was tested in a number of samples to try and see if there was a relationship in the dividends and the first and second year earnings. For predictions of the earning in the 1st year, the coefficients in the changes of the dividend were only significant at the 10% level in only about 10% of the sample population. In the earnings of the second year, there was only a slight improvement in the significant level of the coefficients