Dividend policy, earnings announcements, and analysts' earnings forecasts

2019-04-19This thesis examines the impact of announcements of dividend changes on analysts' earnings forecasts. In particular, I inquire whether security analysts revise their forecasts of annual earnings per share, after the announcement of shifts in dividend policy, significantly differently than in prior months, after controlling for other relevant information sources such as contemporaneous quarterly earnings announcements. This is a direct test of the Information Content of Dividends Hypothesis of Modigliani and Miller, who proposed that shifts in dividend policy should signal changes in managerial expectations of future earnings. ❧ I find that changes in corporate dividend policy, on average, do not generate revisions in earnings forecasts which are significantly different from the documented secular forecast revision activity in the months prior to the dividend announcement month. The only instance in which forecast revisions are statistically significantly different from their secular forecast revision activity is after dividend cuts which were announced within a calendar month of a quarterly earnings announcement. The findings of this thesis do not support the predictions of the Information Content of Dividends Hypothesis