Abstract

This study aims at comparing accounting and finance perspective to predict earnings persistence. Accounting perspective predicts that current earning components affect the future earnings, while finance perspective predicts that current dividends affect the future earnings. The results show that component of earnings more persistence rather than total earning, and persistence of earnings are also showed by changes of dividend. The results of this study that changes in dividend policy have information contents about future earnings. Increase in dividend payment show that firm believe that firm have better prospect in the future thus able to achieve better future performance. This result confirm prospect theory. This research also find manager use dividend policy to convey relevant information to investor. Managers believe that firms have good opportunity in the future and achieve higher performance. In this case, managers pays higher dividend to give signal to investor that firm will achieve better performance. Firms using dividend policy to give signal to investor to convey relevant information. This result confirm dividend signalling theory.  The results also confirm agency theory studying the relationship between management (agent) and shareholder (principal) and assuming the more unite the shareholder, the more powerful shareholders’ position rather management’s position. The principal interested to both earnings distribution and increasing in future earnings, whereas management prefer increasing permanent earnings with increasing investment on prospective project rather than dividing dividend. The findings of the study show that increase in current earnings and dividend indicates increase in future earnings and dividends. The results of the study show that accrual-cash flow perspective better indicating quality of earnings than dividend signaling perspective.

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