Dividend Irrelevance and Accounting Models of Value

William Rees, Aljosa Valentincic

Research output: Contribution to journalArticlepeer-review


In accounting models of value, dividends typically appear to have a strong positive relationship with value despite theoretical reasons to expect dividend displacement. We show that this result is driven by the relationship between dividends and both core earnings and other information derived from the valuation error in the prior year. Where core earnings can be effectively modelled in a specification including other information, dividend displacement is no longer rejected. Under these circumstances dividends exhibit weak incremental predictive power for earnings and earnings expectations and hence have little impact on value. We show that valuation models are sensitive to model specification and should be used with caution when testing the value impact of firm characteristics or accounting numbers.
Original languageEnglish
Pages (from-to)646-672
Number of pages27
JournalJournal of Business Finance and Accounting
Issue number5-6
Publication statusPublished - Jun 2013


  • dividend displacement
  • core earnings
  • other information
  • valuation models
  • value relevance tests


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