The Effect of Past Earnings and Dividend Patterns on the Information Content of Dividends When Earnings Are Reduced

The aim of this paper is to investigate the effect of changes in past earnings and dividends patterns on Information content of current dividend to predict future earnings and investigate relation between changes in these patterns with change in current dividend when earnings are decreased. For this purpose, two samples include 42 and 50 firms for investigating patterns in two subsamples are selected, pattern with two years and pattern with larger than four years. Time period were included from 1997 to 2013. The result showed that for the sample with larger than four years increase in past earnings and dividends patterns, decrease in earnings and dividend have more informative and with future earnings have higher significant relationship. Also, result showed that in sample with larger than four years increase in past earnings and dividends patterns, change in dividend pattern have higher significant relationship with current earnings. Generally, results showed that increase in past earnings and dividends patterns among companies that have decrease in earnings; Information content of current dividend to predict future earnings are increased and; Also, reduction in realized earnings and dividend policy are increased and earnings have more informative to explain of dividend reduction.