Effects of temporary earnings on dividends in Korea

ABSTRACT

We examine the effects of temporary earnings on dividends using cash dividend data of Korean firms over the period of 2001 to 2017. We find that firms using private debts exclusively increase dividends as temporary earnings increase while those with public debts do not change their dividends. We further find that the positive effects of temporary earnings on dividends in firms with only private debts is hampered by investment opportunity. These results are consistent with the precautionary savings hypothesis of firms under financing constraints as well as signalling hypothesis of public debts.

KEYWORDS:

• temporary earnings
• dividends
• investment opportunities
• precautionary savings
• financing constraints

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Hongik University new faculty research support fund.