Dividends Payout and Earnings Predictability: Evidence from a Developing Country

Abstract

This study investigates the relation between dividends payout and earnings predictability of firms listed on the Egyptian Stock Exchange as an emerging African market. We depend on a sample of firms listed on the Egyptian stock exchange (EGX100) during 2014-2018. To test the hypotheses, we use two independent sample t-test and OLS regression. The principal analysis revealed that dividends payout improves the ability of current earnings to forecast firms' future earnings. Results also indicated that dividends payout could enhance the ability of current earnings to forecast one year-ahead cash flow. To the best of our knowledge, this is the first study that examines the implications of dividends payout on earnings predictability in the Egyptian market. The findings present new insights to investors, researchers, and regulators concerned with agency conflicts of interest within the firm. It also presents evidence on the potential alternative mechanisms for decreasing agency costs in African emerging markets.