ON THE INFORMATION CONTENT OF TIME SERIES OF ACCOUNTING EARNINGS

Time-series models of dividends are constructed in order to examine whether accounting measures of corporate earnings contain information relevant to future dividends. Time series covering 1949-1982 are obtained for 30 UK firms. Two sets of observations are used: annual dividends distributed to common shareholders and annual earnings available to shareholders. The results indicate that the inclusion of accounting earnings yields significant improvements in dividend forecast models for most of the firms. Moreover, many of the models exhibit instantaneous causality from earnings to dividends, although specification of the preferred model varies from firm to firm. A tentative framework is also presented for evaluating the information content of other accounting numbers.