Research methodology

• The main issue to be addressed in this study is the

attempt to determine the association between
dividend payout ratios and future earnings growth.
• It is already well known that the payout ratios of
cash dividends are subject to the “free cash flow”
hypothesis, and that those of stock dividends are
subject to the “retained earnings” hypothesis.
• In addition, there is, as yet, no theory or hypothesis
in existence capable of explaining dual dividends
 hypothesize
• They found the hypothesize that if managers adopt dual
dividends, there are two-tier implications, the first of which is
the use of certain amounts of cash dividends to demonstrate
both their self-discipline and the financial robustness of the
company, whilst the second is the use of certain levels of stock
dividends to convey the message of future optimistic growth.
Hence, we surmise that, to this end, managers will choose an
optimal cash-to-stock dividend ratio . We refer to the dividend
distribution policy under this ratio as a balanced-dividend
policy.
 Under a balanced-dividend policy, dual-dividend payout ratios
will be positively associated with future earnings growth.
 Data
• This article data used in this study were
obtained from the Taiwan Economic Journal
database.
• The sample period for this study runs from
2000 to 2004.
• In addition, the sample should be listed on
either the Taiwan Stock Exchange (TSE), only
firms in the non-financial industries and
companies with incomplete financial data
 Model 1
• This study follows the procedures reported in
Zhou and Ruland (2006) to assess the
association between dividend payout ratios
and future earnings growth.
 Model 2
• the interactions between dividend yields and
the dividend payout ratios.

• EPSGRt 1 = α0 + β1Payoutt + β2Sizet +

β3ROAet + β4Betat + β5AGt + 1+ β6DivYieldt +
β7DivYieldt*Payoutt + β8EPSGRt + et +
• We examine why dividend payout ratios are
associated with future earnings growth.

• EPSGRt + 1 = α0 + β1Payoutt + β2Sizet +

β3ROAet + β4Betat + β5AGt + 1 + β6DivYieldt
+ β7M/ At + β8M/ At⁎Payoutt + β9EPSGRt +et
The association between future earnings growth & cash
dividend payout ratios
The association between future earnings growth and stock
dividend payout ratios.
The association between future earnings growth and dual
dividend payout ratios.
The association between future earnings growth and dual
dividends by cash versus stock dividend ratios.
 Conclusion
• This study highlighted that dual dividend had
evidence to support the relation between
payout ratios and future earnings growth.
• Moreover, firm’s investment opportunities in
Taiwan would not facing difficulties if their
cash dividend were too large and their future
earnings would not be restrained by large
stock dividends. (C-S. Huang, 2009)