The Predictive Content of Earnings Forecasts and Dividends

Authors

  • STEPHEN H. PENMAN

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    • Schools of Business Administration, University of California, Berkeley. The comments of Michael Brennan, Robert Freeman, Nicholas Gonedes, Robert Heinkel, and James Ohlson are much appreciated. Financial support from the Peat, Marwick, Mitchell Foundation is also acknowledged.

ABSTRACT

This paper compares the properties of dividend announcements and management earnings forecasts as predictors of earnings and firm value. First, the two predictors are compared on the basis of their ability to predict earnings. Then the information they convey about firm value is assessed by comparison of the performance of investment strategies based on values of the two predictors. Finally, the effects of dividend announcements on stock prices are considered.

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