Future Earnings (future + earning)

Distribution by Scientific Domains
Distribution within Business, Economics, Finance and Accounting


Selected Abstracts


Accounting Conservatism and the Temporal Trends in Current Earnings' Ability to Predict Future Cash Flows versus Future Earnings: Evidence on the Trade-off between Relevance and Reliability

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2010
SATI P. BANDYOPADHYAY
M41; C23; D21; G38 This research reports that an increasing level of accounting conservatism over the 1973,2005 period is associated with: (1) an increase in the ability of current earnings to predict future cash flows and (2) a decrease in the ability of current earnings to predict future earnings. We also find that usefulness of earnings for explaining stock prices over book values is positively related to reliability but not to relevance. Our results hold for the constant and full samples in both in-sample and out-of-sample analyses and are robust to the use of alternative measures for relevance, reliability, earnings usefulness, and conservatism. Our findings about the relations among conservatism, relevance, reliability, and usefulness suggest a trade-off between relevance and reliability and seem to indicate that the adoption of an increasing number of conservative accounting standards has a possible adverse impact on earnings usefulness through a negative effect on reliability. [source]


Affirmative Action in Higher Education: How Do Admission and Financial Aid Rules Affect Future Earnings?

ECONOMETRICA, Issue 5 2005
Peter Arcidiacono
This paper addresses how changing the admission and financial aid rules at colleges affects future earnings. I estimate a structural model of the following decisions by individuals: where to submit applications, which school to attend, and what field to study. The model also includes decisions by schools as to which students to accept and how much financial aid to offer. Simulating how black educational choices would change were they to face the white admission and aid rules shows that race-based advantages had little effect on earnings. However, removing race-based advantages does affect black educational outcomes. In particular, removing advantages in admissions substantially decreases the number of black students at top-tier schools, while removing advantages in financial aid causes a decrease in the number of blacks who attend college. [source]


Do Stock Prices Fully Reflect the Implications of Special Items for Future Earnings?

JOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002
David Burgstahler
Previous research (Rendleman, Jones, and Latane [1987]; Freeman and Tse [1989]; Bernard and Thomas [1990]; and Ball and Bartov [1996]) indicates that security prices do not fully reflect predictable elements of the relation between current and future quarterly earnings. We investigate whether this finding also holds for the special items component of earnings. Given that special items are prominent in financial analysis and are assumed to have relatively straightforward implications for future earnings (special items are assumed to be largely transitory), one might expect that prices would fully impound the implications of special items for future earnings. Based on the "two-equation" approach used in Ball and Bartov [1996] and other studies (e.g., Abarbanell and Bernard [1992]; Sloan [1996]; Rangan and Sloan [1998]; and Soffer and Lys [1999]), we find that while prices reflect relatively more of the effects of special items compared to other earnings components, we still reject the null hypothesis that prices fully impound the implications of special items for future earnings. The "two-equation" approach assesses the consistency of coefficients in a pair of prediction and pricing equations, and thus depends on an assumed functional form. However, a less structured abnormal returns methodology like that used in Bernard and Thomas [1990] also supports the conclusion that the implications of special items are not fully impounded in prices. Specifically, a trading strategy based only on the sign of special items earns small but statistically significant abnormal returns during a 3-day window four quarters subsequent to the original announcement of special items. [source]


Analyst Following, Institutional Investors and Pricing of Future Earnings: Evidence from Korea

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 3 2008
Bobae Choi
This paper examines the role of sophisticated investors in pricing future earnings in Korea. Using the future earnings response coefficient (FERC) model, we test the effect of analyst following and institutional ownership on the informativeness of stock returns for future earnings. We find that the informativeness of stock returns for future earnings, measured as the FERC, increases with the analyst following and institutional ownership. We also investigate how the recently introduced Regulation Fair Disclosure in Korea affects the informativeness of stock returns for future earnings and its relation with analyst following and institutional ownership. The results show that the regulation decreases the FERC in general and its relation with analyst following, suggesting that analysts' superior ability is impaired after the regulation. [source]


Accounting Conservatism and the Temporal Trends in Current Earnings' Ability to Predict Future Cash Flows versus Future Earnings: Evidence on the Trade-off between Relevance and Reliability

CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2010
SATI P. BANDYOPADHYAY
M41; C23; D21; G38 This research reports that an increasing level of accounting conservatism over the 1973,2005 period is associated with: (1) an increase in the ability of current earnings to predict future cash flows and (2) a decrease in the ability of current earnings to predict future earnings. We also find that usefulness of earnings for explaining stock prices over book values is positively related to reliability but not to relevance. Our results hold for the constant and full samples in both in-sample and out-of-sample analyses and are robust to the use of alternative measures for relevance, reliability, earnings usefulness, and conservatism. Our findings about the relations among conservatism, relevance, reliability, and usefulness suggest a trade-off between relevance and reliability and seem to indicate that the adoption of an increasing number of conservative accounting standards has a possible adverse impact on earnings usefulness through a negative effect on reliability. [source]


Are Fundamentals Priced in the Bond Market?,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2003
Inder K. Khurana
Abstract To date, the discussion of the Lev and Thiagarajan 1993 fundamentals in the prior literature has been exclusively in the context of the stock market. Our study is the first to examine the value-relevance of these fundamentals for default risk. By focusing on the market for new bond issues, we examine the value-relevance of the fundamental score using expected rather than realized returns. Also, by focusing on the bond market we provide a different perspective than that brought by prior studies relying solely on stock prices. We find the fundamentals to be priced in the market for new bond issues as indicators of expected future earnings and to be value-relevant in enabling the market to discern differences in bond credit quality over and above the published bond ratings. [source]


Neural Network Earnings per Share Forecasting Models: A Comparative Analysis of Alternative Methods

DECISION SCIENCES, Issue 2 2004
Wei Zhang
ABSTRACT In this paper, we present a comparative analysis of the forecasting accuracy of univariate and multivariate linear models that incorporate fundamental accounting variables (i.e., inventory, accounts receivable, and so on) with the forecast accuracy of neural network models. Unique to this study is the focus of our comparison on the multivariate models to examine whether the neural network models incorporating the fundamental accounting variables can generate more accurate forecasts of future earnings than the models assuming a linear combination of these same variables. We investigate four types of models: univariate-linear, multivariate-linear, univariate-neural network, and multivariate-neural network using a sample of 283 firms spanning 41 industries. This study shows that the application of the neural network approach incorporating fundamental accounting variables results in forecasts that are more accurate than linear forecasting models. The results also reveal limitations of the forecasting capacity of investors in the security market when compared to neural network models. [source]


Affirmative Action in Higher Education: How Do Admission and Financial Aid Rules Affect Future Earnings?

ECONOMETRICA, Issue 5 2005
Peter Arcidiacono
This paper addresses how changing the admission and financial aid rules at colleges affects future earnings. I estimate a structural model of the following decisions by individuals: where to submit applications, which school to attend, and what field to study. The model also includes decisions by schools as to which students to accept and how much financial aid to offer. Simulating how black educational choices would change were they to face the white admission and aid rules shows that race-based advantages had little effect on earnings. However, removing race-based advantages does affect black educational outcomes. In particular, removing advantages in admissions substantially decreases the number of black students at top-tier schools, while removing advantages in financial aid causes a decrease in the number of blacks who attend college. [source]


Signaling, Free Cash Flow and "Nonmonotonic" Dividends

FINANCIAL REVIEW, Issue 1 2010
Kathleen Fuller
G35 Abstract Many argue that dividends signal future earnings or dispose of excess cash. Empirical support is inconclusive, potentially because no model combines both rationales. This paper does. Higher quality firms pay dividends to eliminate the free cash-flow problem, while firms that outsiders perceive as lower quality pay dividends to signal future earnings and reduce the free cash-flow problem. In equilibrium, dividends are nonmonotonic with respect to the signal observed by outsiders; the highest quality firms pay smaller dividends than lower perceived quality firms. The model reconciles the existing literature and generates new empirical predictions that are tested and supported. [source]


Cash flow disaggregation and the prediction of future earnings

ACCOUNTING & FINANCE, Issue 1 2010
Neal Arthur
G11; G23 Abstract We examine the incremental information content of the components of cash flows from operations (CFO). Specifically the research question examined in this paper is whether models incorporating components of CFO to predict future earnings provide lower prediction errors than models incorporating simply net CFO. We use Australian data in this setting as all companies were required to provide information using the direct method during the sample period. We find that the cash flow components model is superior to an aggregate cash flow model in terms of explanatory power and predictive ability for future earnings; and that disclosure of non-core (core) cash flows components is (not) useful in both respects. Our results are of relevance to investors and analysts in estimating earnings forecasts, managers of firms in regulators' domains where choice is provided with respect to the disclosure of CFO and also to regulators' deliberations on disclosure requirements and recommendations. [source]


The Explanatory Power of Canadian Accounting Measures of Earnings Dilution,

ACCOUNTING PERSPECTIVES, Issue 1 2002
THOMAS W. SCOTT
ABSTRACT This paper examines the properties of the accounting measures of dilution under pre-2001 Canadian GAAP. Fully diluted earnings per share (EPS) presents investors with a per-share figure that attempts to capture the maximum potential dilution that would occur if all dilutive convertible securities were converted and all dilutive stock options and rights exercised. We examine how the difference between basic and fully diluted EPS, which we refer to as the dilutive adjustment, affects the ability of EPS to predict one-period-ahead EPS. Moreover, we address the issue of the explanatory power of changes in the dilutive adjustment for unexpected stock returns over the year and at the earnings announcement date. Surprisingly, in contrast with the traditional accounting view that increases in the dilutive adjustment present the investor with bad news due to potential dilution of the future earnings stream, the dilutive adjustment is positively related to next period's earnings and increases in the dilutive adjustment are positively correlated with contemporaneous long-window stock returns. These results can be attributed to the relation between the dilutive adjustment and the earnings process combined with a partial resolution of the uncertainty attached to growth firms. We find no evidence that investors use information from the disclosure of fully diluted EPS at the earnings announcement date. These results are consistent with increases in the dilutive adjustment capturing the partial realization of a firm's growth potential that more than outweighs the potential dilution attached to the convertible securities; however, this information appears to be already embedded in price prior to the disclosure of fully diluted EPS. [source]


Analysts' Incentives and Street Earnings

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2009
BOK BAIK
ABSTRACT We examine whether analysts' incentives are associated with street earnings. Because prior research argues that analysts' incentives to promote stocks increase in the extent to which the stock exhibits glamour characteristics, we predict that analysts are more likely to make income-increasing adjustments in determining street earnings for glamour stocks than for value stocks. We find that analysts are more likely to exclude expense items from street earnings for glamour stocks than for value stocks and that excluded expense items help predict future earnings for glamour stocks but not for value stocks. Overall, our results suggest that analysts' self-interest influences street earnings and this self-interest leads to street earnings that are less useful in predicting future earnings for glamour stocks. [source]


Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?

JOURNAL OF ACCOUNTING RESEARCH, Issue 5 2003
Artyom Durnev
ABSTRACT Roll [1988] observes low R2 statistics for common asset pricing models due to vigorous firm-specific return variation not associated with public information. He concludes that this implies "either private information or else occasional frenzy unrelated to concrete information"[p. 56]. We show that firms and industries with lower market model R2 statistics exhibit higher association between current returns and future earnings, indicating more information about future earnings in current stock returns. This supports Roll's first interpretation: higher firm-specific return variation as a fraction of total variation signals more information-laden stock prices and, therefore, more efficient stock markets. [source]


Confirming Management Earnings Forecasts, Earnings Uncertainty, and Stock Returns

JOURNAL OF ACCOUNTING RESEARCH, Issue 4 2003
Michael Clement
In this study we examine the association among confirming management forecasts, stock prices, and analyst expectations. Confirming management forecasts are voluntary disclosures by management that corroborate existing market expectations about future earnings. This study provides evidence that these voluntary disclosures affect stock prices and the dispersion of analyst expectations. Specifically, we find that the market's reaction to confirming forecasts is significantly positive, indicating that benefits accrue to firms that disclose such forecasts. In addition, although we find no significant change in the mean consensus forecasts (a proxy for earnings expectations) around the confirming forecast date, evidence indicates a significant reduction in the mean and median consensus analyst dispersion (a proxy for earnings uncertainty). Finally, we document a positive association between the reduction of dispersion of analysts' forecasts and the magnitude of the stock market response. Overall, the evidence suggests that confirming forecasts reduce uncertainty about future earnings and that investors price this reduction of uncertainty. [source]


Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study

JOURNAL OF ACCOUNTING RESEARCH, Issue 2 2003
Ole-Kristian Hope
Using a sample from 22 countries, I investigate the relations between the accuracy of analysts' earnings forecasts and the level of annual report disclosure, and between forecast accuracy and the degree of enforcement of accounting standards. I document that firm-level disclosures are positively related to forecast accuracy, suggesting that such disclosures provide useful information to analysts. I construct a comprehensive measure of enforcement and find that strong enforcement is associated with higher forecast accuracy. This finding is consistent with the hypothesis that enforcement encourages managers to follow prescribed accounting rules, which, in turn, reduces analysts' uncertainty about future earnings. I also find evidence consistent with disclosures being more important when analyst following is low and with enforcement being more important when more choice among accounting methods is allowed. [source]


Do Stock Prices Fully Reflect the Implications of Special Items for Future Earnings?

JOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002
David Burgstahler
Previous research (Rendleman, Jones, and Latane [1987]; Freeman and Tse [1989]; Bernard and Thomas [1990]; and Ball and Bartov [1996]) indicates that security prices do not fully reflect predictable elements of the relation between current and future quarterly earnings. We investigate whether this finding also holds for the special items component of earnings. Given that special items are prominent in financial analysis and are assumed to have relatively straightforward implications for future earnings (special items are assumed to be largely transitory), one might expect that prices would fully impound the implications of special items for future earnings. Based on the "two-equation" approach used in Ball and Bartov [1996] and other studies (e.g., Abarbanell and Bernard [1992]; Sloan [1996]; Rangan and Sloan [1998]; and Soffer and Lys [1999]), we find that while prices reflect relatively more of the effects of special items compared to other earnings components, we still reject the null hypothesis that prices fully impound the implications of special items for future earnings. The "two-equation" approach assesses the consistency of coefficients in a pair of prediction and pricing equations, and thus depends on an assumed functional form. However, a less structured abnormal returns methodology like that used in Bernard and Thomas [1990] also supports the conclusion that the implications of special items are not fully impounded in prices. Specifically, a trading strategy based only on the sign of special items earns small but statistically significant abnormal returns during a 3-day window four quarters subsequent to the original announcement of special items. [source]


High-Technology Intangibles and Analysts' Forecasts

JOURNAL OF ACCOUNTING RESEARCH, Issue 2 2002
Orie E. Barron
This study examines the association between firms' intangible assets and properties of the information contained in analysts' earnings forecasts. We hypothesize that analysts will supplement firms' financial information by placing greater relative emphasis on their own private (or idiosyncratic) information when deriving their earnings forecasts for firms with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts' forecasts, measured as the correlation in analysts' forecast errors, is negatively associated with a firm's level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm's future earnings, which we also find to be higher for firms with high levels of internally generated (and expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm's intangible assets, we also expect and find that the degree to which the mean forecast aggregates private information and is more accurate than an individual analyst's forecast increases with a firm's intangible assets. Finally, additional analysis reveals that lower levels of analyst consensus are associated with high-technology manufacturing companies, and that this association is explained by the relatively high R&D expenditures made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers. [source]


Market Reactions to Warnings of Negative Earnings Surprises: Further Evidence

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 7-8 2008
Weihong Xu
Abstract:, This study examines two plausible explanations for Kasznik and Lev's (1995) counterintuitive finding that warning firms are subject to more negative market returns than no-warning firms. Namely, are the more negative market reactions to warning firms due to their poorer future earnings performance or due to investor overreaction? I find that, compared with no-warning firms, warning firms experience more severe one-year-ahead earnings declines and these earnings declines can explain the stronger market returns to warning firms. However, my results do not support an investor overreaction explanation. The tests of subsequent abnormal returns of warning firms over various windows do not detect stock return reversals due to correction for overreaction. In addition, the greater revisions in analysts' forecasts for warning firms are found to enhance analyst accuracy rather than increase analyst pessimism. Collectively, my results suggest that the more negative market reactions to warning firms reflect investors' rational anticipation of more severe declines in future earnings for warning firms rather than investor overreaction. [source]


Accounting for Joint Ventures and Associates in Canada, UK, and US: Do US Rules Hide Information?

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2006
Kazbi Soonawalla
Abstract: Unlike US GAAP, accounting principles in Canada and the UK require disclosure of disaggregated components of joint ventures and associates. Using comparative analysis of Canadian, UK and US data, this study investigates the potential loss of forecasting and valuation relevant information from aggregating joint venture and associate accounting amounts. Findings show that aggregating joint venture and associate investment numbers, and aggregating joint venture revenues and expenses, each leads to loss of forecasting and valuation relevant information. Thus, current US accounting principles likely mask information that financial statement users could use to predict future earnings and explain share prices. [source]


Analyst Following, Institutional Investors and Pricing of Future Earnings: Evidence from Korea

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 3 2008
Bobae Choi
This paper examines the role of sophisticated investors in pricing future earnings in Korea. Using the future earnings response coefficient (FERC) model, we test the effect of analyst following and institutional ownership on the informativeness of stock returns for future earnings. We find that the informativeness of stock returns for future earnings, measured as the FERC, increases with the analyst following and institutional ownership. We also investigate how the recently introduced Regulation Fair Disclosure in Korea affects the informativeness of stock returns for future earnings and its relation with analyst following and institutional ownership. The results show that the regulation decreases the FERC in general and its relation with analyst following, suggesting that analysts' superior ability is impaired after the regulation. [source]


The Persistence and Forecast Accuracy of Earnings Components in the USA and Japan

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 1 2000
Don Herrmann
Not all components of earnings are expected to provide similar information regarding future earnings. For example, basic financial statement analysis indicates that the persistence of ordinary income should be greater than the persistence of special, extraordinary, or discontinued operations. Because the market assigns higher multiples to earnings components that are more persistent, differentiating earnings components on the basis of relative persistence would appear to be useful. A focus on relative predictive value is consistent with research findings and user recommendations on separating earnings components that are persistent or permanent from those that are transitory or temporary. This paper examines the persistence and forecast accuracy of earnings components for retail and manufacturing companies listed in the world's two largest equity markets; the USA and Japan. We find the forecast accuracy of earnings in both the USA and Japan increases with greater disaggregation of earnings components. The results further indicate that the improvements in forecast accuracy due to earnings disaggregation are greater in the USA than in Japan. The greater emphasis and more detailed guidelines for reporting earnings components in the USA produce a better differentiation in the persistence of earnings components resulting in greater forecast improvements from earnings disaggregation. [source]


Calculating compensation for loss of future earnings: estimating and using work life expectancy

JOURNAL OF THE ROYAL STATISTICAL SOCIETY: SERIES A (STATISTICS IN SOCIETY), Issue 4 2008
Zoltan Butt
Summary., Where personal injury results in displacement and/or continuing disability (or death), damages include an element of compensation for loss of future earnings. This is calculated with reference to the loss of future expected time in gainful employment. We estimate employment risks in the form of reductions to work life expectancies for the UK workforce by using data from the Labour Force Survey with the purpose of improving the accuracy of the calculation of future lifetime earnings. Work life expectancies and reduction factors are modelled within the framework of a multiple-state Markov process, conditional on age, sex, starting employment state, educational attainment and disability. [source]


Social Security Wealth and Retirement Decisions in Italy

LABOUR, Issue 2003
Agar Brugiavini
Our analysis tries to assess the importance of the financial incentives built into the social security system. The basic idea is very simple: at any given age, and based on the available information, workers compare the expected present value of two alternatives: retiring today or working one more year, and then choose the best one. A key role in this kind of comparisons is played by social security wealth, whose level and changes reflect the expectations about the profile of future earnings and the institutional features of the social security system. The various incentive measures that we consider differ in the precise weight given to the social security wealth that workers accrue as they continue to work. Our model does not provide a structural representation of the retirement process. A worker's decision is modeled here following a ,quasi reduced-form' approach, with the incentive measures entering as predictors of the worker's choice in addition to standard variables. The estimated models are then used to predict retirement probabilities under alternative policies that change social security wealth and derived incentive measures. [source]


An analytical approach for making management decisions concerning corporate restructuring

MANAGERIAL AND DECISION ECONOMICS, Issue 8 2006
Beixin Lin
Internal corporate restructuring activities, such as downsizing, sale or termination of a business line, facility closure, consolidation, or relocation, often occur as part of managerial strategies intended to improve efficiency, control costs, and adapt to an ever-changing business environment. Such actions frequently result in fundamental changes in a business's organization, its strategies, its systems, and its operations. They can unsettle a business and often significantly affect current and future earnings and cash flows. In this paper we propose a novel decision-making model through the use of the dynamic programming technique to illustrate how management can determine the optimal timing and appropriate restructuring actions that maximize the benefits of a restructuring program. Copyright 2006 John Wiley & Sons, Ltd. [source]


Fundamental analysis of stocks by two-stage DEA

MANAGERIAL AND DECISION ECONOMICS, Issue 5 2004
Cristina Abad
Fundamental analysis of stocks links financial data to firm value in two consecutive steps: a predictive information link tying current financial data to future earnings, and a valuation link tying future earnings to firm value. At each step, a large number of causal factors have to be factored into the evaluation. To effect these calculations, we propose a new two-stage multi-criteria procedure, drawing on the techniques of data envelopment analysis. At each stage, a piecewise linear efficiency frontier is fitted to the observed data. The procedure is illustrated by a numerical example, analyzing some 30 stocks in the Spanish manufacturing industry in the years 1991,1996. Copyright 2004 John Wiley & Sons, Ltd. [source]


Pension Plan Funding and Stock Market Efficiency

THE JOURNAL OF FINANCE, Issue 2 2006
FRANCESCO FRANZONI
ABSTRACT The paper argues that the market significantly overvalues firms with severely underfunded pension plans. These companies earn lower stock returns than firms with healthier pension plans for at least 5 years after the first emergence of the underfunding. The low returns are not explained by risk, price momentum, earnings momentum, or accruals. Further, the evidence suggests that investors do not anticipate the impact of the pension liability on future earnings, and they are surprised when the negative implications of underfunding ultimately materialize. Finally, underfunded firms have poor operating performance, and they earn low returns, although they are value companies. [source]


Dividend Changes and Future Profitability

THE JOURNAL OF FINANCE, Issue 6 2001
Doron Nissim
We investigate the relation between dividend changes and future profitability, measured in terms of either future earnings or future abnormal earnings. Supporting "the information content of dividends hypothesis," we find that dividend changes provide information about the level of profitability in subsequent years, incremental to market and accounting data. We also document that dividend changes are positively related to earnings changes in each of the two years after the dividend change. [source]


The Market's Differential Reactions to Forward-Looking and Backward-Looking Dividend Changes

THE JOURNAL OF FINANCIAL RESEARCH, Issue 4 2003
Bong-Soo Lee
Abstract Empirical evidence on the signaling hypothesis of dividends is weak and mixed. Recent studies find that dividend changes reflect mostly current and past earnings but not future earnings. We provide a model in which not all dividend changes contain new information about future earnings. Some dividend decisions are backward looking (noninformation or nonsignaling events). Other dividend decisions are forward looking (information or signaling events). The model helps identify the two types of dividend changes and predicts that the market will respond strongly only to forward-looking dividend changes. We provide evidence consistent with the implications of the model. [source]