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THE RELATIONSHIP BETWEEN CASH DIVIDEND AND EARNINGS GROWTH OF

LISTED COMPANIES IN TEHRAN STOCK EXCHANGE

MASSOUD KHEIRANDISH

ecomkh@gmail.com

Department of Economic, Faculty of Humanities, Gonbad Kavous University, Gonbad (Iran).

MOHSEN MOHAMMADI KHYAREH

m.mohamadi@gonbad.ac.ir

Department of Economic, Faculty of Humanities, Gonbad Kavous University, Gonbad (Iran).

Abstract

Dividend policy is one of the most important financial decisions managers encounter. This

study contributes to empirical studies examining the relationship between cash dividends and

earnings growth of companies listed on the Tehran Stock Exchange during the period 2007-

2020. As a result, 131 companies have been examined with the multiple regression estimation

model. The findings show a significant relationship between cash dividends per share and

future earnings growth. Furthermore, there is a significant relationship interaction term

between the dividend payout ratio and the investment growth assumption. This relationship

is also observed for return on equity and dividend payout ratio.

Keywords

Efficiency; future earnings growth; dividend policy

How to cite this article

Kheirandish, Massoud; Khyareh, Mohsen Mohammadi (2022). The relationship between cash

dividend and earnings growth of listed companies in Tehran stock exchange. In Janus.net, e-

journal of international relations. Vol13, Nº. 1, May-October 2022. Consulted [online] on the

date of the last visit, https://doi.org/10.26619/1647-7251.13.1.13

Article received on November 6, 2021 and accepted for publication on March 16, 2022

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e-ISSN: 1647-7251

Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

205

THE RELATIONSHIP BETWEEN CASH DIVIDEND AND EARNINGS

GROWTH OF LISTED COMPANIES IN TEHRAN STOCK EXCHANGE

MASSOUD KHEIRANDISH

MOHSEN MOHAMMADI KHYAREH

1. Introduction

Forecasting is a key factor in making economic decisions. The economic decisions of

investors, creditors, managers, and other parties depend on expectations and forecasts.

Since investors and financial analysts use profit as one of the main criteria for evaluating

a company, and they tend to evaluate future profitability to make decisions to maintain

or sell shares, they judge a company's performance based on profit because the

resources allocation to business units and divisions is made through profitability forecasts

(Shafai et al., 2019). It is also important to potential investors. They forecast future

earnings and cash flows based on the investment and allocation of capital resources

(Asadi and Oladi, 2015). Dividend policy is one of the most important issues in financial

management, because cash dividends represent the main cash payment of an enterprise

and are one of the most important choices and decisions faced by managers. The

manager should decide the amount that is considered to be distributed profit and the

amount that will be reinvested in the company in the form of retained earnings. Dividends

are paid directly to shareholders, and they affect a company's ability to accumulate

profits to take advantage of growth opportunities. According to his own belief, every

investor buys shares of companies with desirable dividend policies. Dividends proposed

by the board of directors often contain important information about managers'

expectations about the company's future profitability (Mehrani et al., 2010). In this

regard, this paper investigates the impact of changes in dividend payments on revenue-

growing companies listed on the Tehran Stock Exchange. When a company has

reasonable investments to be developed in the following few years or when a company

forecasts its financial needs for the following year, it provides distributions or dividends

to a general meeting of shareholders. If the general assembly agrees with the board, the

benefits are distributed among the shareholders, transferred to retained earnings or

savings accounts, and given to shareholders in the form of bonus shares after the project

has been run. Otherwise, profits are distributed among shareholders and then capital is

increased after the procedure if the management determines that the company needs

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e-ISSN: 1647-7251

Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

206

cash financing (Jahankhani & Ghorbani, 2005). Several factors may affect a company's

profit distribution policy and may limit dividends. These factors are determined for the

company within the mandatory framework of laws and regulations, or the company

undertakes to provide the performance of these factors. Generally, these factors can be

divided into three categories: legal, contractual, and internal. The tax laws of some

countries also prohibit excessive non-profit dividends. While the definition of uncontrolled

dividends is somewhat ambiguous, it is generally defined as the maintenance of residual

income for current and future investment needs. The tax code is designed to prohibit tax

evasion by companies without dividends. Penalties will be imposed on companies if the

tax authorities detect a significant amount of relevant non-dividend tax. Therefore, when

a company reaches a large cash position, it must provide the tax authorities with a good

reason for maintaining these funds; otherwise, it should distribute additional funds to

shareholders in the form of dividends. The law may also impose additional restrictions on

the payment of dividends. These limits may be reflected in minimum dividends, or they

may be proposed as limits on loans received, which are determined based on dividends.

Additional legal restrictions are imposed on preferred shares; preferred shareholders

receive profits first, and the company may not distribute profits until the deferred

earnings of preferred shareholders have not been paid. With these clues, the main

question of this study is the relationship between cash dividends and earnings growth of

companies listed on the Tehran Stock Exchange. The question is whether the change in

benefits will affect the company's revenue.

2. Theoretical Foundations

2.1. The Concept of Dividend

The concept of profit has come under criticism in the development and management of

institutions in recent years, and economic theorists have replaced it with other concepts

such as utility. For this reason, profit is often rejected in criticism and claims that profit

is not the only reason for a company to be formed, but rather to introduce other welfare,

social, political, and economic reasons as the main goal of company formation (Flint et

al., 2010). Economists also know that capital formation is effective for growth and

economic development. Capital formation comes either from the government or from the

private sector. Governments consider factors in their investments such as infrastructure

projects, economic guidance policies, provision of facilities to participate in regulating the

supply and demand of goods and services... and profit in support of political and military

objectives.

The relationship between dividends and returns: As profits are distributed, companies

must pay higher fees for issuing stock to fund new investments. Dividend return theory

explains this aspect of dividend policy ambiguity. Since managers know more about a

company's future profitability than outside investors, they can have better business

prospects for dividend returns as dividends increase, and they can often experience

higher share prices in the market. Additionally, financial managers may use dividend

policies to determine the quality of earnings due to their informational content. In this

regard, since outside investors have less information about a company's future

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e-ISSN: 1647-7251

Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

207

profitability, dividend performance is seen as information derived from expected future

cash flows, as stock prices in the market respond quickly to dividend decisions. Ross

(1987) studied the characteristics of dividend payments in signal models. In signaling

theory, cash dividends provide the prospect of a company's future profits. The company

is receiving cash dividends by paying to provide more information about the company's

future market profitability. Higher profits allow the company to leave more cash behind

through dividends; therefore, dividends reflect the company's steady state profitability.

2.2. Income growth

Income growth is the change in income over a specific period. Information asymmetry

related to growth opportunities is higher than that related to assets (Penrose and

Penrose, 2009). Thus, when all retained earnings have been made, hierarchy theory

(Fama & French, 2001, Myers & Majluf, 1982) predicts the debt priority of firms with high

growth opportunities. According to Roth (1977), creditors are aware of high growth

opportunities for companies, and they offer them ideal credit terms. Therefore, according

to signaling theory, the expected relationship between a firm's growth opportunities and

liabilities is positive. According to agency theory, the relationship between growth

opportunities and liabilities can be positive or negative.

2.3. Review of Literature

Parker (2005) showed that at the level of market indices in the United States, Canada,

and Australia, dividend payout ratios are negatively correlated with future earnings

growth, as stock profits and dividends are characteristic of large companies. Higher

dividend payout ratios lead to higher future profit growth, which was the weakest

relationship in Australia during the 1956-2005 period.

Sava (2006) studied dividend signaling theory on the Deutsche Börse, and he found some

evidence on the relationship between a reduction in cash dividends and a company's

future performance, but his findings did not verify that an increase in cash dividends has

an impact on future companies’ performance. Both studies (Mayers, 1984; Gul, 1999;

Gordon, 1962) confirm that high dividend payout ratios can be detrimental to future

income growth.

ap Gwilym et al., (2006) studied the relationship between future earnings growth and

dividend payout ratios and concluded that the dividend payout ratio is a broad topic for

researchers in theoretical modeling. Although the researchers ignored dividend payout

ratios, there was a positive correlation between dividend payout ratios and future

dividend growth. A delayed negative relationship or negative coefficient was found in

variable profit growth. According to free cash flow theory, dividend payments are

inversely related to the level of investment GDP and GDP.

Izadinia (2009) studied 11 factors to evaluate dividend policy. These variables are

company leverage, company size, last year's dividends, investment opportunities, cash

earned by the company's operating activities, expected profits for the following year,

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e-ISSN: 1647-7251

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The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

208

average interest paid by competing companies, inflation rate, percentage of free float,

and average profit growth over the previous five years rate and company earnings per

share. Significant relationships were identified for factors such as firm size, last year's

dividends, investment opportunities, following year's expected profits, and inflation, but

not for other variables.

Freshteh Eftekhar Nejad (2009) studied the effect of retained and distributed earnings

on future profitability and return on equity. This paper divides profits into two parts:

retained earnings and distributed dividends; then, it analyzes the effects of retained

earnings and distributed earnings on the future profitability and return on equity of

companies listed on the Tehran Stock Exchange. Retained earnings include current

operating accruals, non-current operating accruals, accumulated cash flow and

distribution income, including cash flow to shareholders and cash flow from debt. 50

companies listed on the Tehran Stock Exchange, companies in the period 2007-2012

were analyzed by multiple regression analysis and panel analysis (Eftekhar Nejad, 2009).

Dewasiri et al. (2019) identified the determinants of dividend policy in emerging and

developing markets. Their results showed that past dividend decisions, earnings,

investment opportunities, profitability, free cash flow (FCF), corporate governance,

country ownership, company size, and industry influence as key determinants of the

propensity to pay dividends. Additionally, past dividends, investment opportunities,

profitability and dividend premiums are identified as determinants of dividend payments.

Fakhari and Yousef Ali Tabar (2010) conducted a study titled "The relationship between

dividend policy and corporate governance of companies listed on the Tehran Stock

Exchange"; they studied the relationship between dividends and corporate governance

as a proxy for resolution problem tool. According to a checklist, they divided corporate

governance into eight categories: disclosure, business ethics, training, compliance with

legal requirements, auditors, ownership, board structure, management, asset and

liquidity ratios, calculations and divisions. The results show that stock companies use

dividends for reputation and prestige. Regarding the important relationship between

corporate governance and dividends, corporate governance has a lower impact on

dividends (Fakhari & Yousef Ali Tabar, 2010).

In their study Jahankhani and Ghorbani (2005) researched the determinants of DP in

companies listed on the Tehran Stock Exchange. They concluded that there was no

significant association between firm growth and development, ownership concentration,

and the amount of cash and dividend decisions, whereas increased risk, investment

opportunities, firm size, and increased debt in the capital structure were all significantly

lower the company's dividend payments.

Etemadi and Chalaki (2005) researched the relationship between the Tehran Stock

Exchange's performance indicators (operating cash flow, operating income, and earnings

per share) and cash dividends. The results show a significant relationship between a

company's current performance and its cash dividend payments. Based on the results,

the most important determinants of dividends appear to be EPS, operating income, and

operating cash flow, respectively.

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The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

209

Mashayekh and Abdollahi (2011) examine the relationship between ownership

concentration, performance indicators, and corporate dividend payments. The results

show that ownership concentration can improve corporate performance, and the higher

the ownership concentration, the better performance indicators such as ROA and Tobin's

Q. Based on the second hypothesis, there is a positive relationship between firm

performance and payment policy. However, the results of the third hypothesis assert that

no significant relationship is observed between ownership concentration and dividend

decisions. This means that in Iran, most of shareholders cannot significantly influence

dividend payment decisions.

Abbaszadeh, Vadeei, and Pakdel (2012) examine the association of institutional

ownership, cash flow, and dividend policy. The results show a significant positive

relationship between levels of institutional ownership, active institutional ownership, and

dividend policy. However, the relationship between inactive institutional ownership and

payment policy is negative. Furthermore, the findings show a positive and significant

association between operating cash flow and corporate dividend decisions.

Asadi and Oladi (2015) studied 133 public companies from the 10-year period from 2001

to 2010 and showed that the most important dividend determinant is market risk, which

is negatively related, followed by market and book value, and firm size, which is positively

related.

Kheirkhah et al. (2019) studied the relationship between the market concentration and

power of the Tehran Stock Exchange and the company's dividend policy between 2010

and 2015. Their results showed that there is a significant positive correlation between

market concentration and the power of payment decisions. On the other hand, the

relationship between market power and concentration and the dividend payout ratio is

also statistically significant.

2. Research Methodology and Data

In terms of relevance and research methodology, this is post hoc quasi-experimental

research in the field of empirical accounting; it is a form of applied research because it

is conducted with real data and can be used to manipulate data. By its nature and

purpose, this study is practical. The research is based on real-world data from the stock

market, financial statements, notes to financial statements, and company meeting

reports. The necessary data to test hypotheses was gathered by pulling the required data

directly from financial statements, Tadbir Pardaz databases and stock exchange websites.

After screening and classification of industry sample companies, some calculations were

performed using Excel software. The classification of stocks is considered when grouping

companies in different industries. Multiple linear regression models were used for

statistical analysis; EViews and Stata software were used for data analysis.

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The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

210

2.1. Data

The sample for this study is 131 companies from various industries active on the Tehran

Stock Exchange from 2007 to 2020, with the following characteristics:

1) Fiscal year ends on 30 December.

2) The company should not change its financial year;

3) The company should not be an industry company due to the nature of the industry

being different from other member companies;

4) Due to the need to roll back to 12 months, the securities (common shares) are traded

at intervals of 4 months from the beginning of the period.

5) Information should be available.

2.2. Developing Theoretical Hypothesis

This study uses the method reported by Zhou and Ruland (2006) to investigate the

relationship between dividend payout ratio and future income growth. Under a balanced

dividend policy, there is a significant positive relationship between dividend payments

and future income growth. Therefore, we introduce the Model (1) as follow:

EPSGRt + 1 = β0 + β1Payoutt + β2Sizet + β3ROAt+1 + β4Betait + β5AGt+1 + β6DivYieldt +β7EPSGRt + et;

Where:

EPSGRt+1 is future earnings growth. It is the annual financial measure of common stock

from year t to year t+1 as the next revenue growth.

Payoutt is Dividend payout ratio. It is measured by dividing the ratio of the profits in

foreign exchange earnings from year t to year t+1.

Sizet is measured using the natural logarithm of total assets at end of year t;

ROAt is the forecasted return in year t+1; it is a proxy as an indicator when the first

quarter return in year t+1 is divided by the next quarter's total assets.

Betat is the market risk factor (e.g., the beta of an individual firm) for year t;

AGT+1 is future asset growth; it measures the annual growth rate of total assets in t+1;

DivYieldt is the dividend yield (dividend at the end of year t divided by the current stock

price). It is current income growth, measured as the annual increase in after-tax income

from common stock from year t-1 to year t.

Earnings per share (EPS), return on assets (ROA), and return on equity (ROE) are often

used to measure future income. Since EPS is familiar to most investors, this study takes

EPS as the priority, and selects ROA and ROE for strong testing (ap Gwilym et al., 2006).

In fact, researchers succeed when there is a positive correlation between dividend payout

ratios and future earnings growth. Therefore, the following model (2) is used to measure

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Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

211

the interaction between dividend payout and dividend ratio. Earnings per share (EPS),

return on assets (ROA) and return on equity (ROE) are often used to measure future

income. Since EPS is familiar to most investors, this research gives priority to EPS and

selects ROA and ROE for robustness check. In fact, the researcher shown that there is a

positive correlation between dividend payout ratio and future earnings growth. Therefore,

the following Model (2) is used to measure the interactions between dividend payments

and the ratio of dividends:

EPSGRt + 1 = β0 + β1Payoutt + β2Sizet + β3ROAet + β4Betat + β5AGt + 1 + β6DivYieldt +β7DivYieldt *Payoutt

+ β8Epsgrt +et;

where; DivYieldt *Payoutt is the interaction term between dividend yield and dividend

payout ratio. Combining the results of model (2), in this paper, we look for dividend

reasons for future earnings growth in model (3) a follow

EPSGRt + 1 = β0 + β1Payoutt + β2Sizet + β3ROAet + β4Betat + β5AGt + 1 + β6DivYieldt +β7 Mt/At + β8 Mt/At

*Payoutt + β8EPSGRt +et;

where; Mt/At is the interaction term between dividend payout ratio and investment

growth opportunity. In fact, the above model examines the relationship between dividend

payments and stock income growth in two different directions.

3. Empirical Results

3.1. Descriptive Statistics

Table 1. Descriptive Statistics

Variables

EPSGRt+1

Payoutt

ROAt

Betat

AGT+1

DivYieldt

SIZE

ROE

Future

revenue

growth

Dividend

payout ratio

Expected

return on

assets for

the year t+1

Market

Risk

Index

Asset

growth

in the

future

Yield

profit

Firm

size

Return

equity

Mean

0.163

522

0.75

-0.0072

0.12

0.042

25125

0.23

Median

0.152

433

0.77

0.014

0.14

0.166

88966

0.201

Maximum

0.435

4000

0.87

2.307

0.15

0.29

22419

0.13

Minimum

0.115

0.65

-6.24

0.0006

-84942

0.11

Std. Dev

0.81

166972

0.07

0.704

0.0042

0.007

41824

0.032

Jarque-Bera

2.56

622

2.25

1.5

1.73

1.2

2.1

0.9

Probability

0.32

433

0.38

0.56

0.47

0.67

0.41

0.8

Normality of the variables has been investigated in the last two rows of Table 1. It is

seen in the row of Jarque-Bera statistic that the level of scores are mentioned wether the

variables are normal or not normal. In the next row, or last row, the error probability of

each variable is stated to investigate the above hypothesis. In this regard, no variable is

normal at the probability level of less than 1 percent. It means that the null hypothesis

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Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

212

is verified for all variables. Time-series regression method is used to test the research

hypotheses.

Normality of variables is investigated in the last two rows of Table 1. As can be seen, in

the Jarque-Bera statistic, the score level is mentioned whether the variable is normal or

Non-normal. In the next or last line, the probability of error for each variable is stated to

study the above hypothesis. In this regard, none of the variables are normal at probability

levels below 1%. This means that the null hypothesis is verified for all variables. Time

series regression methods are used to test research hypotheses.

3.2. Estimation Results of Model (1)

The first test aims to investigate effective measuring for dividend payout ratio in the

companies listed in Iran stock market. Its statistical hypothesis is defined as follows:

According to a balanced dividend policy, there is a positive relationship between dividend

payout ratio and future revenue growth.

H0: There is a positive relationship between dividend payout ratio and future revenue

growth at the company level in companies listed in Tehran Stock Exchange.

H1: There is no significant relationship between dividend payout ratio and future revenue

growth at the company level in companies listed in Tehran Stock Exchange.

The regression model (1) is used at the corporate level and the combined data for testing

the first hypothesis.

The first test aims to investigate a valid measure of the dividend payout ratio of

companies listed on the Iranian stock market. Its statistical assumptions are defined as

follows:

According to the balanced dividend policy, the dividend payout ratio is positively related

to future revenue growth.

H0: For companies listed on the Tehran Stock Exchange, the payout ratio is positively

correlated with future revenue growth at the company level.

H1: Among companies listed on the Tehran Stock Exchange, there is no significant

relationship between company-level dividend payout ratios and future revenue growth.

The regression model (1) was used at the firm level and the combined data was used to

test the first hypothesis. The estimation results reported in Table 2.

Based on the presented results, since t-statistics for every variable is 0.000, it is possible

to argue that all variables are verified at the level of below 1 percent; the null hypothesis,

indicating each variable is zero, is rejected. On the contrary, the main research variable

has a high t-statistics (2.88) indicating that companies’ dividends payment ratio affects

the future earnings growth at the error probability less than one percent; they have

positive relationship. Therefore, H1 hypothesis is verified, and one can assert that there

is significant relationship between dividends payment in the companies listed in Tehran

Stock Exchange and the company’s future earnings growth. As a result, the first

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The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

213

hypothesis is verified at the 99% confidence level. In this manner, if paying dividends for

companies listed in Tehran Stock Exchange increases one percent, the company’s future

earning will increase with the rate of 2.6. There is a positive relationship between firm

size, predicting return on assets for the year ahead, and future asset growth to future

revenue growth of companies. There is a negative relationship between market risk index

and performance of dividend to companies’ future earnings growth.

Table 2: Regression result of model (1)

Dependent Variable: EPSGRt+1

Future revenue growth

Method: Pooled EGLS (Period weights)

Variable

Coefficient

Std. Error

t-Statistic

C Intercept

-5.62

4.0

-3.51

Payoutt

2.6

0.9

2.88

SIZE

0.0018

2.84E-08

63.38

ROAt

13.97

0.01

17.46

Betat

-0. 49

0.002

-24.5

AGT+1

2.46

0.28

8.78

DivYieldt

-7.01

0.30

-23.36

EPSGRt

0.01

0.003

3.33

Weighted Statistics

R-squared

0.92

Mean dependent var

724.59

Adjusted R-squared

0.92

S.D. dependent var

1512.47

S.E. of regression

76.207

Sum squared resid

37127396

F-statistic

13833.87

Durbin-Watson stat

1.82

Prob(F-statistic)

Unweighted Statistics

R-squared

0.106

Mean dependent var

163.91

Sum squared resid

37842275

Durbin-Watson stat

1.46

Based on the presented results, since the t-statistic for each variable is 0.000, it can be

said that all variables are validated at the level below 1%; the null hypothesis that each

variable is zero is rejected. Conversely, the main study variable has a high t-statistic

(2.88), indicating that the firm's dividend payout ratio affects future earnings growth

with less than 1% probability of error; they have a positive relationship. Therefore, the

H1 hypothesis is verified, and it can be asserted that there is a significant relationship

between the dividend payments of companies listed on the Tehran Stock Exchange and

the company's future earnings growth. As a result, the first hypothesis was validated at

the 99% confidence level. Thus, if the dividend payment of a company listed on the

Tehran Stock Exchange increases by 1 percentage point, the company's future earnings

will increase by a factor of 2.6. There is a positive correlation between company size,

predicted return on assets for the next year, and future asset growth and the company's

future revenue growth. Market risk index and dividend performance have a negative

correlation with a company's future earnings growth.

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The relationship between cash dividend and earnings growth of listed companies in

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214

3.3. Estimation Results of Model (2)

The second test aims to study the relationship between the interaction terms of dividend

yield and dividend payout ratio and future income growth in the stock market. where

DivYieldt *Payoutt is the interaction term between dividend yield and dividend payout

ratio, and its statistical assumptions are defined as follows:

H0: For companies listed on the Tehran Stock Exchange, the interaction term of

dividend yield and dividend payout ratio has a significant relationship with future

revenue growth.

H1: For companies listed on the Tehran Stock Exchange, the interaction term of

dividend yield and dividend payout ratio is not significantly related to future revenue

growth. The regression model (2) was used at the industry level and the combined data

was used to test the second hypothesis.

Estimation results of this study also confirms previous model except that the variable

“DivYieldt *Payoutt” is added. Variable “DivYieldt *Payoutt” is negative.

Table 3: Regression Results of Model (2)

Dependent Variable: EPSGRt+1

Future revenue growth

Method: Pooled EGLS (Period weights)

Variable

Coefficient

Std. Error

t-Statistic

C Intercept

-0.527

2.5

-2.1

Payoutt

1.6

0.6

2.66

SIZE

0.0021

0.0011

1.90

ROAt

11.67

0.7

16.67

Betat

-0. 48

0.1

-4.8

AGT+1

2.32

0.4

5.8

DivYieldt

-6.015

0.79

-7.61

Payoutt*DivYieldt

-5.39

0.86

-6.26

EPSGRt

0.012

0.002

Weighted Statistics

R-squared

0.970788

Mean dependent

var

992.9963

Adjusted R-squared

0.970756

S.D. dependent

var

3220.122

S.E. of regression

73.55683

Sum squared resid

34584606

F-statistic

30345.88

Durbin-Watson

stat

1.820631

Prob(F-statistic)

Unweighted Statistics

R-squared

0.123862

Mean dependent

var

163.9166

Sum squared resid

37094783

Durbin-Watson stat

1.53669

Based on the presented results, since the t-statistics for dividend yield and dividend

payout ratio are 0.000, it can be said that these variables are validated at a level below

1%; therefore, the null hypothesis is validated, and it can be asserted that the Tehran

Stock Exchange there is a significant relationship between a listed company's dividend

payment and the company's future earnings growth. As a result, the second hypothesis

was validated at the 99% confidence level. However, there is a negative correlation

JANUS.NET, e-journal of International Relations

e-ISSN: 1647-7251

Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

215

between these two variables. In this regard, the model's coefficient of determination

indicates that the model explains 97% of the abnormal return variation. If the interaction

between dividend yield and dividend payout ratio increases by one unit, the future income

growth rate decreases by 5.39 units. This means negative relationships for them. The

relationship of other variables is the same as that of Model 1, and the labels remain

unchanged.

3.4. Estimation Results of Model (3)

The third test investigates the interaction term between dividend payout ratios and

investment firm growth opportunities, and its impact on future earnings growth of Tehran

Stock Exchange-listed firms. When At/Mt is the interaction term between payout ratio

and investment growth opportunities, its statistical assumptions are defined as follows:

H0: There is a significant relationship between the dividend payout ratio interaction term

and the investment growth opportunities of companies listed on the Tehran Stock

Exchange.

H1: There is no significant relationship between the dividend payout ratio interaction

term and the investment growth opportunities of companies listed on the Tehran Stock

Exchange.

The regression model (3) was used at the industry level and the combined data was used

to test the third hypothesis. To test the third hypothesis based on the above model and

the results are summarized in Table (4).

Table 4: Regression Results of model (3)

Dependent Variable: EPSGRt+1

Method: Pooled EGLS (Period weights)

Variable

Coefficient

Std. Error

t-Statistic

-3.59

0.76

-4.72

Payout

2.4

0.98

2.448

SIZE

0.028

0.009

3.11

ROA

10.03

2.90E+00

3.45

Betat

-0. 46

0.2

-2.3

T+1

1.99

0.7

2.84

DivYield

-6.78

1.5

-4.52

Mt/A

2.19

1.7

1.28

Mt/A *Payoutt

-4.08

2.11

-1.93

EPSGRt

0.021

0.004

5.25

Weighted Statistics

R-squared

0.98

Mean dependent var

1027.4

Adjusted R-squared

0.98

S.D. dependent var

3717.3

S.E. of regression

73.13

Sum squared resid

34180011

F-statistic

42778

Durbin-Watson stat

1.77

Prob(F-statistic)

Unweighted Statistics

R-squared

0.124

Mean dependent var

163.92

Sum squared resid

37071107

Durbin-Watson stat

1.53

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e-ISSN: 1647-7251

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The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

216

Based on the presented results, since the t-statistic for each variable is 0.000, it can be

said that all variables are validated; since the t-statistics probability of the combined

variable between the dividend payout ratio of the companies listed on the Tehran Stock

Exchange and the investment growth opportunity Less than 0.10 in the industry, so H0

is validated. Dividend payout ratios and corporate investment growth opportunities have

a negative impact on future corporate earnings growth. The resulting coefficients show

that if the ratio between "dividend payout ratio" and "opportunity for company

investment growth" increases by one-unit, future revenue growth will decrease by a ratio

of 4.08.

4. Conclusion

Dividend policy is one of the most important corporate fiscal policies considered by

researchers due to its impact on financing and investment policies. Various theories have

been proposed to describe it in modern financial management, thereby studying new

aspects of payment effects and implications along with other important factors in the

stock market and public companies. Companies must consider many factors to decide

how much cash dividends to pay. Cash dividends are an interesting aspect since many

investors are willing to predict future investments and decide to hold or sell their shares

in the future.

Findings show that the impact of cash dividends on company earnings and stocks can be

very helpful. this paper aims to investigate the relationship between dividends and future

income growth of companies listed on the Tehran Stock Exchange. According to the

theoretical basis of the research, the main research model is established to test the

relationship between the dividend rate and future income growth. For this, the

researchers used information from the Tehran Stock Exchange from 2007 to 2020. Since

the payout ratio has multiple dimensions, the relationship between the payout ratio

dimension and future revenue growth is tested in the form of three hypotheses. Using

these three assumptions, the combined variable of the dividend payout ratio is calculated

and the relationship between the variable and future income growth is investigated. This

article is useful for the Tehran Stock Exchange organization as well as for investment

companies on the stock exchange. Additionally, managers can use this article to

implement their policies in the company.

listed companies take advantage of retained earnings to assist listed companies in

financing, increase shareholder utility through dividends on time, and increase listed

companies' earnings. Generally, the following suggestions can be made: Growth of the

company.

- It is recommended that managers, investors, etc. pay more attention to dividend

payments, as this has a significant impact on future earnings growth.

- Advise managers, investors, and others to pay more attention to dividend payments,

as the interaction term of dividend yield has a significant relationship with future earnings

growth through dividend payout ratio.

JANUS.NET, e-journal of International Relations

e-ISSN: 1647-7251

Vol. 13, Nº. 1 (May-October 2022), pp. 204-218

The relationship between cash dividend and earnings growth of listed companies in

Tehran stock exchange

Massoud Kheirandish; Mohsen Mohammadi Khyareh

217

- Advise managers, investors, and others to pay more attention to dividend payments as

it has a significant impact on future income growth by increasing the growth of

investment opportunities.

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