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Stale and scale effects in markets-based accounting research: evidence from the valuation of dividends

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>2014
<mark>Journal</mark>European Accounting Review
Issue number1
Number of pages31
Pages (from-to)25-55
Publication StatusPublished
<mark>Original language</mark>English


This study revisits prior research on the valuation of dividends in an accounting-based valuation framework. Using a battery of tests, we show that market value deflation is essential in market-based tests of dividend displacement and signalling because it controls for 'stale' information in addition to scale (size) differences across firms. For US firms, we show that after controlling for 'stale' information, the empirical association between dividends and market values switches from positive to negative. This switch is not explained by scale differences across firms. Further, we show that after controlling for staleness, the valuation of dividends remains positive for European firms. This result is explained by the relatively stronger association of dividends with future earnings in these settings (i.e. signalling). Lastly, our country-specific estimates of dividend valuation provide a potentially valuable index for studies aimed at examining the effects of accounting and securities regulation on information asymmetries in an international context.