Predicting future earnings growth: a test of the dividend payout ratio in the Australian market

This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship.

A comparative analysis of accounting-based valuation models

We empirically compare the reliability of the dividend (DIV) model, the residual income valuation (CT, GLS) model, and the abnormal earnings growth (OJ) model. We find that valuation estimates from the OJ model are generally more reliable than those from the other three models, because the residual income valuation model anchored by book value gets off to a poor start when compared with the OJ model led by capitalized next-year earnings. We adopt a 34-year sample covering from 1985 to 2013 to compare the reliability of valuation estimates via their means of absolute pricing errors (MAPE) and corresponding t statistics. We further use the switching regression of Barrios and Blanco to show that the average probability of OJ valuation estimates is greater in explaining stock prices than the DIV, CT, and GLS models. In addition, our finding that the OJ model yields more reliable estimates is robust to analysts-based and model-based earnings measures.

Dividend policy choice : do earnings or investment opportunities matter?

The aim of this paper is to analyse the influence of a company's level of earnings and growth opportunities in determining the dividend policy choice of Malaysian-listed firms. The analysis is based on a sample of 136 firms listed on the Bursa Malaysia Index over a period of six years, from 1990 to 1996. The evidence suggests that the payers are more profitable than non-payers. Likewise, investment opportunity, which is measured by (∂At /At-1) and (Vt /At), differed for both payers and non-payers. The regression estimates from Logit model suggest that the average coefficient for EATA is a significant determinant for firm's dividend policy choice in Malaysia. This is consistent with the supposition that profitable firms are more likely to pay dividends than less profitable firms. Although investment opportunities, the firm's size and leverage were not found to be statistically significant, they provided some explanation for the dividend policy choice.

Quenched and annealed microstructures of hot worked magnesium AZ31

The microstructures of magnesium AZ31 are examined following hot compression testing and annealing. The grain size, fraction dynamically recrystallized and, in a couple of cases, the crystallographic texture are reported. The progress of dynamic recrystallization and the recrystallized grain size were sensitive to processing conditions, as expected. This effect was more marked in the former than in the latter, compared to other metals. It was also found that, for structures containing between 80 and 95% dynamic recrystallization, abnormal grain growth occurred during annealing. Irrespective of the whether or not abnormal grain growth occurred, the annealing step weakened the crystallographic texture.

Recrystallization during and following hot working of magnesium alloy AZ31

The microstructures of magnesium AZ31 are examined following hot compression testing and annealing. The grain size, fraction dynamically recrystallized and, in a couple of cases, the crystallographic texture are reported. It was found that the progress of dynamic recrystallization is strongly sensitive to processing conditions but that the dynamically
recrystallized grain size was less sensitive to stress than in other metals. It was also found that, for structures containing between 80 and 95 % dynamic recrystallization, abnormal grain growth occurs during annealing. The crystallographic texture produced is also sensitive to the deformation conditions.

Information leakage and informed trading around unscheduled earnings announcements

While there has been much judicial discussion regarding the competency of Australia's continuous disclosure regime with reference to contemporaneous international standards, there has to date been limited empirical analysis of the Australian system's effectiveness in preventing selective disclosure and information leakage. This paper presents an empirical study of information content and trading behaviour around unscheduled earnings announcements - comprising of profit upgrades, profit warnings and neutral trading statements - made by ASX-listed companies during 2004. The contention is that informed trading impacts on the stock returns and trading volumes of listed entities, and hence abnormal returns or trading volumes observed prior to an announcement provide evidence of information leakage. The paper models a range of factors that potentially influence firm disclosure practices and contribute to the level information asymmetry in the market during the pre- announcement period. Previous research has investigated the influence of firm size and information content in contributing to information leakage. This study further considers the variables of firm growth, capital structure and industry group.

Exploring the moderating role of growth options on the relation between board characteristics and management earnings forecasts

Manuscript Type
Empirical
Research Question/Issue
This study examines whether director independence, reputation, and financial expertise are related to management earnings forecast (MEF) activity. In particular, we examine whether such a relationship is moderated by firms’ growth options.
Research Findings/Insights
Using Australian archival data for 1,928 firm-years between 1999 and 2006, we find several board characteristics have a significant positive relationship with: (1) the likelihood of firms issuing MEFs; (2) their specificity; (3) their accuracy; and (4) a negative relationship with their bias. For (1), (2), and (3) we show that these relationships are accentuated for firms with high growth options.
Theoretical/Academic Implications
While the theory of voluntary disclosure suggests firms will disclose information that is favorable to them or their managers, well-governed firms issue informative MEFs that potentially reduce information asymmetries in capital markets. We extend the prior literature by showing that such a relation is enhanced in the presence of information asymmetry and moral hazard associated with growth options.
Practitioner/Policy Implications
Our results have strategic implications for nomination committees by showing that independent directors and those with strong reputations and financial expertise enhance the governance of high growth firms. We also inform the regulatory debate by showing that good corporate governance enhancing disclosure quality is context-specific – it is not a case of “one size fits all”.

Fundamental determinants of the Australian price-earnings multiple

This paper is the first attempt to investigate the factors fundamental to the setting of the price–earnings (P–E) multiple for the Australian stock market. The quarterly P–E ratio for the ASX 200 index is used as a measure of the market wide P–E multiple. It is demonstrated that a large portion of the variation in the P–E multiple can be explained by the dividend payout ratio, interest rates and GDP growth rates. In addition, consumers' confidence—a leading indicator of future growth opportunities, the Australian–US exchange rate—a key determinant of the competitiveness of domestic companies, and volatility of domestic market returns—a risk factor, have incremental explanatory power.

Toward high growth enterprise

The disproportional impact of high growth firms on economies around the world has made them a natural focus of policy attention in New Zealand. That is what is behind New Zealand's ICT taskforce recommendations in 2003 to grow 100 ICT companies each doing over US$ 100 million sales per year by 2012 (a huge accomplishment for a small economy). Those companies could help New Zealand's foreign exchange earnings and jobs, not to mention improved health care, better resourced schools and tertiary institutions, debt reduction and increased savings, and improved standard of living (ICT Taskforce, 2003).

The global financial crisis and the centro properties group earnings revision and refinancing announcements : an event study

This study analyses the impact of the global financial crisis using Centro Properties Group's earnings revision and refinancing announcements on December 17th 2007 as the event date to investigate the change in risk profile for A-REITs that were included in the S&P/ASX 300. The study finds that nine of the 25 A-REIT constituents on the S&P/ASX 300 recorded statistically significant negative abnormal returns on 17th December 2007 and that the systematic risk for many A-REITs moved significantly higher after this date. This increased systematic risk has major implications for the cost of capital to the sector.

Audit quality : earnings management in the context of the Asian crisis

This study assumes that evidence regarding audit quality can be derived from the level of earnings management reflected in reported abnormal or discretionary accruals. Given this assumption, audit quality is examined in the context of the 1997 Asian financial crisis using data from Malaysia. Examining audit quality in its association with earnings management across differential macroeconomic periods provides insights that may be otherwise masked. The period of the crisis is partitioned between pre-crisis (1994-1996), crisis (1997-1998) and post-crisis (1999). Using a robust approach to the measurement of abnormal accruals, the association of Big 5/non-Big 5 and Industry Specialist/Industry non-specialist auditors with both the levels of, and change in levels of, abnormal accruals is investigated across and within the crisis sub-periods from 1994-1999. Audit quality is found to be associated with abnormal accruals, and differentially so across macroeconomic period with greater constraint evident post-crisis.

Audit quality : earnings management in the context of the 1997 Asian crisis

This study assumes that evidence regarding audit quality can be derived from the level of earnings management reflected in reported abnormal or discretionary accruals. Given this assumption, audit quality is examined in the context of the 1997 Asian financial crisis using data from Malaysia. Examining audit quality in its association with earnings management across differential macroeconomic periods provides insights that may be otherwise masked. The period of the crisis is partitioned between pre-crisis (1994-1996), crisis (1997-1998) and post-crisis (1999). Using a robust approach to the measurement of abnormal accruals, the association of Big 5/non-Big 5 and Industry Specialist/Industry non-specialist auditors with both the levels of, and change in levels of, abnormal accruals is investigated across and within the crisis sub-periods from 1994-1999. Audit quality is found to be associated with abnormal accruals, and differentially so across macroeconomic period with greater constraint evident post-crisis.

Does tourism Granger causes economic growth in Fiji?

Tourism is Fiji's largest industry in terms of export earnings and employment. In this paper we investigate the nexus between tourism receipts and real gross domestic product (GDP) in Fiji. Specifically, we test whether the two variables are cointegrated and using Granger causality tests we establish the direction of causation between the two. We find that there is a cointegration relationship when real GDP is the dependent variable. On the direction of causation we find that in the short-run real GDP Granger causes tourism receipts while in the long-run tourism receipts Granger cause real GDP.

Achieving growth in the Pacific islands : an introduction

The Small Island Developing States (SIDS)1 in the Pacific, spread out over an area of 30 million square kilometres of ocean, and home to over 9 million people, face a complex and unique set of development challenges. As small, highly open economies they are particularly susceptible to external shocks, including fluctuations in import prices and export earnings in particular. Remoteness from major ports and export markets, low levels of connectivity with the outside world and susceptibility to natural hazards further complicate matters and have resulted in the Pacific islands being amongst the most vulnerable economies in the world. In spite of their increasing integration into global markets, most face further challenges owing to very limited absorptive capacities, limited resources, inadequate technology, lack of infrastructure and poor economic management and institutional capabilities. As a consequence, economic growth and related outcomes in most remain heavily reliant on external resources, typically including at least one of aid, migrant remittances, and foreign direct investment (FDI) (AusAID 2008 and McGillivray et al. 2008). The particular constraints and growth challenges of Pacific SIDS are too often overlooked in the development research literature. Moreover, the policy debate on how to promote and achieve growth in the Pacific islands can benefit from a deeper understanding of the nature and consequences of these often unique, combination of constraints. This Focus is devoted to development challenges facing these islands, specifically relating to the achievement of economic growth, and draws on five papers that were presented or tabled at the World Institute for Development Economics Research (WIDER) ‘Fragility and Development’ research project meeting held in Fiji in December 2006.