Keywords: dividends, signalling, dividend initiations, dividend omissions, emerging markets, India, losses, dividend changes, future earnings, dividend reductions, contemporaneous earnings, lagged earnings, signalling hypothesis, dividend policy
Loss and dividend changes: analysis of Indian firms
The present study examines the influence of losses on dividend changes of selected Indian firms over the period 1990–2001. The test of signalling hypothesis reinforces the earlier findings that dividend omissions have information content about future earnings. However, analysis of other non-extreme dividend events such as dividend reductions and non-reductions shows that current losses are an important determinant of dividend reductions for firms with an established track record and that the incidence of dividend reduction is much more severe in the case of Indian firms compared to that of firms traded on the NYSE. Further, dividend changes appear to signal contemporaneous and lagged earnings performance rather than the future earnings performance.