The impact of dividend payments on shareholders' wealth : evidence from the Vector Error Correction Model

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Authors

De Wet, Johannes H.v.H. (Johannes Hendrik van Heerden)
Mpinda, Mvita Freddy

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Publisher

Clute Institute for Academic Research

Abstract

To date, a vast body of research has been established on dividend policy. However, little research has been done on the impact of dividend payments on shareholders’ wealth while considering the short- and long-run effects. This study is based on a sample of 46 companies listed on the Johannesburg Securities Exchange (JSE) for the period 1995 to 2010. The Vector Error Correction Model (VECM) was used to describe the short-run and long-run dynamics or the adjustment of the co-integrated variables toward their equilibrium values. Results indicate that in the long run, dividend yield is positively related to market price per share, while earnings per share do not have a significant impact on the market price per share.

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Keywords

Dividend payments, Market price per share, Shareholders’ wealth, Relevance and irrelevance theory, Granger causality model, Johansson co-integration test, Vector Error Correction Model (VECM), Earnings per share (EPS)

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Citation

De Wet, J & Mpinda, M 2013, 'The impact of dividend payments on shareholders' wealth : evidence from the Vector Error Correction Model', International Business and Economics Research Journal, vol. 12, no. 11, pp. 1451-1466.