Purpose: This study examines the relationship between profit-generating capabilities and dividend propensity. For this purpose, DuPont Analysis is used. Research design, data, and methodology: Accordingly, DuPont Analysis names these two parts (ATO and PM) as profit-generating capabilities and verifies that the firm’s relationship to dividend payout is different, in addition to the ROA, which means the entity’s simple level of profit. Furthermore, based on a study by Jansen et al. (2012), the study classifies suspected earnings management firms (DPEQ) using ATO and PM and validates their relevance to dividend payout. To confirm the above, the results of the analysis using 12,207 data from 2010 to 2019 are summarized as follows. Results: First, it has been shown that both ATO and PM have a significant amount of relevance to the next dividend payout even after controlling certain variables. This means that both asset-efficient and cost-effective entities have a high dividend payout. Second, it was observed that the DPEQ measured as ATO and PM had a significant amount of relevance to the next period dividend payout. Specifically, the lower the asset efficiency and the higher the cost efficiency, the higher the next dividend payout. Further analysis showed that the results of this study differed according to the differences in listed markets (KOSPI vs. KOSDAQ) and the size of foreign investors’ ownerships, and that the main analysis was more apparent in the KOSPI market and the high foreign investors’ ownerships was not significant in ATO. Implications: Based on the results of the above research, DuPont Analysis may be useful in academia and practice as capital market investors may use it as a substitute method for identifying earnings management.
Hwang et al. (2021) studied this question.