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Dividends Distribution and Earnings Persistence: Evidence from Chinese Listed Companies

Dividends distribution of Chinese listed companies is irregular, and the level of dividends can’t match that of earnings persistence. This paper empirically investigates the relationship between dividends distribution, including payout policy and level of cash dividends, and earnings persistence. Different from current literature, this paper is the first to investigate the relationship between dividends and earnings persistence from the perspective of different earnings components. New findings of this paper are as follows. First, the company which distributed dividends, has a stronger earnings persistence than those not. Second, core earnings persistence of listed companies that distributed dividends is significantly stronger than non-core earnings persistence. In addition, the company which distributed cash dividends, has a stronger earnings persistence than those just paid stock dividends, and the higher the level of cash dividends is, the stronger earnings persistence shows. These findings have implications for Chinese listed companies to improve earnings persistence by increasing operating income, and for the guidance of properly developing the company cash dividends distribution policy according to its core earnings persistence.