Earnings, working capital and dividend payout: Evidence from the London Stock Exchange

Abstract

This paper examines the impacts of the earnings and working capital on the dividend payout, using firms listed on the London Stock Exchange from 1991 to 2015. The results reveal that unadjusted earnings have a positive and significant impact on firms’ dividend payout, whereas the dividend-adjusted earnings are insignificant in explaining firms’ dividend payout. Moreover, we find that there exists an “inverse U-shape” relationship between the working capital and dividend payout. Our findings provide more coherent evidence between the earnings and dividend payout and highlight the importance of considering working capital as a determinant in designing corporate dividend payout policy.