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Stale and Scale Effects in Markets-Based Accounting Research: Evidence from the Valuation of Dividends

Stale and Scale Effects in Markets-Based Accounting Research: Evidence from the Valuation of... AbstractThis study revisits prior research on the valuation of dividends in an accounting-based valuation framework. Using a battery of tests, we show that market value deflation is essential in market-based tests of dividend displacement and signalling because it controls for ‘stale’ information in addition to scale (size) differences across firms. For US firms, we show that after controlling for ‘stale’ information, the empirical association between dividends and market values switches from positive to negative. This switch is not explained by scale differences across firms. Further, we show that after controlling for staleness, the valuation of dividends remains positive for European firms. This result is explained by the relatively stronger association of dividends with future earnings in these settings (i.e. signalling). Lastly, our country-specific estimates of dividend valuation provide a potentially valuable index for studies aimed at examining the effects of accounting and securities regulation on information asymmetries in an international context. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png European Accounting Review Taylor & Francis

Stale and Scale Effects in Markets-Based Accounting Research: Evidence from the Valuation of Dividends

European Accounting Review , Volume 23 (1): 31 – Jan 2, 2014
31 pages

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References (78)

Publisher
Taylor & Francis
Copyright
© 2013 European Accounting Association
ISSN
1468-4497
eISSN
0963-8180
DOI
10.1080/09638180.2013.795870
Publisher site
See Article on Publisher Site

Abstract

AbstractThis study revisits prior research on the valuation of dividends in an accounting-based valuation framework. Using a battery of tests, we show that market value deflation is essential in market-based tests of dividend displacement and signalling because it controls for ‘stale’ information in addition to scale (size) differences across firms. For US firms, we show that after controlling for ‘stale’ information, the empirical association between dividends and market values switches from positive to negative. This switch is not explained by scale differences across firms. Further, we show that after controlling for staleness, the valuation of dividends remains positive for European firms. This result is explained by the relatively stronger association of dividends with future earnings in these settings (i.e. signalling). Lastly, our country-specific estimates of dividend valuation provide a potentially valuable index for studies aimed at examining the effects of accounting and securities regulation on information asymmetries in an international context.

Journal

European Accounting ReviewTaylor & Francis

Published: Jan 2, 2014

Keywords: M41; C10; G12; G14

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