Impacts of Cash Dividend Components on Earning Persistence and Return on Stock

Subject Areas : Financial Accounting

Ali  Moghaddam ¹ (Department of Financial Management, Tehran South Branch, Islamic Azad University, Tehran, Iran)
Dorna  Aslani ² (Department of Financial Management, Tehran South Branch, Islamic Azad University, Tehran, Iran)

Received: 2018-03-19 Accepted : 2018-03-19 Published : 2018-03-01

Keywords: Tehran Stock Exchange (TSE), Accruals component of earn-ing, Cash component of earning, Earning persistence,

Abstract :

The aim of this study is to evaluate the impact of cash dividend components on corporates earnings persistence and return on stock. The population of study consists of 109 companies listed in Tehran Stock Exchange from 2011 to 2016. Data was analyzed using regression model. According to results, the cash component of earnings is more persistent than accruals and it can be used to predict future earnings. Therefore, it is suggested that cash dividend component to predict future earnings. In addition, managers should pay attention to the cash component of earnings in their decisions made on the amount of optimal cash fund because this component can positively affect future earnings. Moreover, the cash flow component of earnings cannot be used to predict future return on stock. Therefore, investors are recommended not to rely on the cash component of earnings in their investments, This is because even if corporates have considerable cash funds, their shares will not necessarily be a suitable option for investment and they should take other factors into account.

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