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Dividend policy and earnings management across countries

Author

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  • He, Wen
  • Ng, Lilian
  • Zaiats, Nataliya
  • Zhang, Bohui

Abstract

This paper examines whether dividend policy is associated with earnings management and whether the relationship varies across countries with wide-ranging degrees of institutional strength and transparency. Based on a sample of 23,429 corporations from 29 countries, we show that dividend payers manage earnings less than dividend non-payers, and that this evidence is stronger in countries with weak investor protection and high opacity. Further, we find that dividend payers manage earnings less when they issue equity following dividend payments, and that this result is more pronounced in countries with weak institutions and low transparency. Overall, our evidence suggests that firms may employ dividend policies associated with less earnings manipulation to mitigate agency concerns and to establish credible reputation, thereby facilitating access to external funds.

Suggested Citation

  • He, Wen & Ng, Lilian & Zaiats, Nataliya & Zhang, Bohui, 2017. "Dividend policy and earnings management across countries," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 267-286.
  • Handle: RePEc:eee:corfin:v:42:y:2017:i:c:p:267-286
    DOI: 10.1016/j.jcorpfin.2016.11.014
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    Cited by:

    1. Guedhami, Omrane & Kwok, Chuck C.Y. & Shao, Liang, 2017. "Political freedom and corporate payouts," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 514-529.
    2. repec:eee:glofin:v:34:y:2017:i:c:p:1-15 is not listed on IDEAS
    3. repec:ers:journl:v:xxii:y:2019:i:3:p:83-94 is not listed on IDEAS

    More about this item

    Keywords

    Dividends; Earnings management; Agency problems; Investor protection; Equity issuance;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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