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Dividend policy irrelevancy and the construct of earnings

Gao, Zhan, Ohlson, James A. and Ostaszewski, Adam (2013) Dividend policy irrelevancy and the construct of earnings. Journal of Business Finance and Accounting, 40 (5-6). pp. 673-694. ISSN 1468-5957

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Identification Number: 10.1111/jbfa.12019


This paper analyzes the characteristics of earnings in valuation settings where the dividend policy is irrelevant to equity value. The paper first demonstrates an equivalent characterization of dividend policy irrelevancy (DPI) in a general linear dynamic. It then proceeds to show how DPI leads to ideal and practical constructs of earnings and examines their analytical properties. We further demonstrate that earnings properties can be used to deduce the core approach in practical equity valuation - namely, measures of growth in expected earnings explain the price to forward earnings ratio. However, unlike dividends, free cash flow cannot generally be claimed to be irrelevant to value.

Item Type: Article
Official URL:
Additional Information: © 2013 John Wiley & Sons Ltd
Divisions: Mathematics
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
Q Science > QA Mathematics
Date Deposited: 28 May 2013 12:10
Last Modified: 20 Oct 2021 00:47

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