Kauppatieteellinen tiedekunta, 2017
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
In this research the relationship between dividend changes and future profitability has been studied using Finnish data set. The main article which have inspired this research is the one from Nissim and Ziv (2001). Nissin and Ziv investigated the relationship between dividend changes and future profitability with using earnings and abnormal earnings as a measurement. Nissim and Ziv’s article is one of the few in which the predictability has been proven to exist and was statistically significant.
In this research the profitability measurement has been changed from return on equity (ROE) to return on assets (ROA). This was motivated by Grullon, Michaely, Benartzi and Thaler (2005). In their research they suggested that the traditional return on equity could be changed from ROE to return on assets.
In my data set I have collected data about Finnish market from 2006 to 2015. The sample includes the historical dividend data and financial statements of companies listed in OMX Helsinki stock exchange. The data sample is 68 companies big.
Like in previous studies the regression analysis has been used to calculate the relationship and the level of influence that the dividends have on future profitability. First the initial analysis has been made. The second regression is cross-sectional regression.
Third, the dividend changes have been divided to two groups depending on rather the change is positive or negative. First group is dividend increases and the second group is dividend decreases. This has been done with a dummy variable.
After the regressions are made with ROA, the results from these regressions are confirmed with other profitability measurement. I have decided to use ROE as a control measurement. This is based on the fact that most of the previous studies have used ROE rather than ROA.
The conclusions of the regressions are clear. In each of the three regressions there were no statistically significant relationship between dividend changes and future profitability in the year one or two. Also the regressions made with ROE showed no significant predictability from dividend changes. In this research the results from Nissim and Ziv weren’t able to reproduce.
Dividends, future profitability, finance, Finnish market, return on assets, return on equity