Dividends (profit share) and profitability (financial performance) still remain unarguably among the most salient attributes of financial research. This paper is interested in empirically exploring if and how signalization theory works in general while being interested in also exploring to what extent dividends may account for the corporate profitability being corporate financial performance in particular. Dynamic panel regressions are performed to test our predictions on twelve (12) different models for an emerging market economy with a sampling time window spanning 2000 through 2018 for 45 listed companies. Financial firms (FFs) versus Non-Financial firms (NFFs) are examined separately and compared together. Although results usually document that (present) dividends tend to be irrelevant in accounting for (signalling future) corporate profitability. However, we have found evidence that dividends, for NFFs, were documented to be relevant in explaining future corporate profitability when the regressed variable is proxied as Return on Capital which may be captured as Earnings Before Tax/Paid-in Capital. In particular, the relationship between present corporate dividend distribution and future corporate profitability is positive, suggesting the higher (lower) the dividends the higher (lower) the profitability. In addition, of all the models tested, for a sizeable fraction, we have also found significant linkage between the lagged and the leadership values of the dependent variable being corporate profitability or corporate financial performance, either for FFs or NFFs if not both.
This paper develops a theory of inter-company price or pricing (ICP) within the framework of monopoly competition as a form of imperfect rivalry and performs an analytical application showing its direct association with corporate financial reporting in general and corporate financial statements in particular. For this purpose, cost advantage and operating profit are served as catalysts to build the theory and apply it into accounting practice. In other words, cost advantage and operating profits are considered and constructed as keys to show and explain the interplay between ICP and corporate financial reporting in general and corporate financial statements in particular. Examinations document that given that businesses transact with each other under bilateral monopoly competition; ceteris paribus, the operating profit figure of the business with cost advantage will be higher than the operating profit (OP) figure of the business without cost advantage. Examinations further document that businesses transact with each other under bilateral monopoly competition; ceteris paribus, asset size, earnings before interest and taxes (EBIT), earnings before taxes (EBT) and hence net income/profit after tax (NPAT) figures of the business with cost advantage will always be higher than asset size, EBIT, EBT and therefore NPAT figures of the business without cost advantage.
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