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The Economic Consequences of Accounting for Stock Splits and Large Stock Dividends

2016; American Accounting Association; Volume: 71; Issue: 2 Linguagem: Inglês

1558-7967

Craig A. Peterson, James A. Millar, James N. Rimbey,

Auditing, Earnings Management, Governance

Prior studies of dividends and have failed to provide valid tests of earnings signaling because they incorrectly assume that stock splits do not restrict future cash dividends. Unlike previous studies, which also incorrectly assume that cash dividends are limited only to the amount of retained earnings, we present a study based on actual accounting treatment and appropriate statutory definitions of distributable equity. We find that more positive information is signaled if the distribution accounting choice reduces distributable equity.