IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v10y2022i6p140-d838583.html

The Relationship between Dividend Policy and Earnings Quality: The Role of Accounting Information in Indonesia’s Capital Market

Author

Listed:
  • Muljanto Siladjaja

    (Faculty of Economics and Business, IKPIA Perbanas Institute, Jakarta 12940, Indonesia)

  • Yuli Anwar

    (Faculty of Economics and Business, Universitas Binaniaga Indonesia, Bogor 16128, Indonesia)

  • Ismulyana Djan

    (Faculty of Economics and Business, Universitas Binaniaga Indonesia, Bogor 16128, Indonesia)

Abstract

This study provides empirical proof that the positive impact of high accrual quality is the ability to accurately predict the future return with a positive sign. In the capital market, better prospects are commonly indicated by regularly and routinely implementing a high-yield dividend policy. This study uses dividend policy as a moderated multiple regression, which plays a critical role in achieving a high obedience to accounting standards. The causal research involved 154 of the companies listed on the Indonesia Capital Market and 384 observations in the industrial manufacturing sector for 2015–2020. By mulling over the effect of the COVID-19 pandemic in 2020, and predicting the future market using zero growth with no assumed growth in the future, this empirical study shows that dividend policy is critical when minimizing opportunity behavior. This research provides a mapping of the decision tree model as an implication of game theory because of the interactive feedback between the earning quality and future market value. A sign such as “good” news significantly stimulates the perception of optimistic investors, with no negative manipulation and accruals. It paves the way for investors to strictly control and monitor strategic decisions to obtain significant improvement in prospects.

Suggested Citation

  • Muljanto Siladjaja & Yuli Anwar & Ismulyana Djan, 2022. "The Relationship between Dividend Policy and Earnings Quality: The Role of Accounting Information in Indonesia’s Capital Market," Economies, MDPI, vol. 10(6), pages 1-23, June.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:6:p:140-:d:838583
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/10/6/140/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/10/6/140/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Persakis, Anthony & Iatridis, George Emmanuel, 2017. "The joint effect of investor protection, IFRS and earnings quality on cost of capital: An international study," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 1-29.
    2. Pietro Perotti & Alfred Wagenhofer, 2014. "Earnings Quality Measures and Excess Returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(5-6), pages 545-571, June.
    3. He, Wei & Kyaw, NyoNyo A., 2018. "Ownership structure and investment decisions of Chinese SOEs," Research in International Business and Finance, Elsevier, vol. 43(C), pages 48-57.
    4. Sam Bock Park & Sung-Kyoo Kim & Sangryul Lee, 2021. "Earnings Management of Insolvent Firms and the Prediction of Corporate Defaults via Discretionary Accruals," IJFS, MDPI, vol. 9(2), pages 1-24, March.
    5. Tang, Tanya & Firth, Michael, 2011. "Can book-tax differences capture earnings management and tax Management? Empirical evidence from China," The International Journal of Accounting, Elsevier, vol. 46(2), pages 175-204, June.
    6. Ghulam Mujtaba Chaudhary & Shujahat Haider Hashmi & Aqeel Younis, 2016. "Does Dividend Announcement Generate Market Signal? Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 65-72.
    7. 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.
    8. Chen, Huimin (Amy) & Wu, Qiang, 2021. "Short selling threat and real activity manipulation: Evidence from a natural experiment," Advances in accounting, Elsevier, vol. 52(C).
    9. Sakaki, Hamid & Jory, Surendranath & Jackson, Dave, 2021. "Institutional investors’ ownership stability and their investee firms’ equity mispricing," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    10. Kasanen, Eero & Kinnunen, Juha & Niskanen, Jyrki, 1996. "Dividend-based earnings management: Empirical evidence from Finland," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 283-312, October.
    11. Pavel Savor & Mungo Wilson, 2016. "Earnings Announcements and Systematic Risk," Journal of Finance, American Finance Association, vol. 71(1), pages 83-138, February.
    12. Sally M. Yorke & Mohammed Amidu & Cletus Agyemin-Boateng, 2016. "The effects of earnings management and corporate tax avoidance on firm value," International Journal of Management Practice, Inderscience Enterprises Ltd, vol. 9(2), pages 112-131.
    13. Pathak, Rajesh & Ranajee,, 2020. "Earnings quality and corporate payout policy linkages: An Indian context," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    14. Gholamreza Askari & Madjid Eshaghi Gordji & Choonkil Park, 2019. "The behavioral model and game theory," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 5(1), pages 1-8, December.
    15. Trang Cam Hoang & Indra Abeysekera & Shiguang Ma, 2019. "Earnings Quality and Corporate Social Disclosure: The Moderating Role of State and Foreign Ownership in Vietnamese Listed Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(2), pages 272-288, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nguyen Cong Thanh & Nguyen Hoang Hai & Nguyen Hoang Phu & Minh Ly Duc, 2024. "“Shall Absolute Power Corrupt Absolutely?†: A Perspective From Financial Constraints and Earnings Quality Under Government Control," SAGE Open, , vol. 14(3), pages 21582440241, July.
    2. Mohamed Khalil & Sandy Harianto & Yilmaz Guney, 2022. "Do political connections reduce earnings management?," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 273-310, July.
    3. Samridhi Suman & Shveta Singh, 2022. "The Role of Multiple Large Shareholders in Dividend Payouts: Evidence from India," American Business Review, Pompea College of Business, University of New Haven, vol. 25(1), pages 120-151.
    4. Yasean A. Tahat & Ahmed H. Ahmed & David Power, 2022. "Earnings quality and investment efficiency: the role of the institutional settings," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 1277-1306, April.
    5. Luca Menicacci, 2022. "Financial reporting and book-tax conformity: A review of the issues," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2022(1), pages 41-77.
    6. Bin Wang & Wonseok Choi & Ibrahim Siraj, 2018. "Local investor attention and post-earnings announcement drift," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 219-252, July.
    7. Azi Ben‐Rephael & Bruce I. Carlin & Zhi Da & Ryan D. Israelsen, 2021. "Information Consumption and Asset Pricing," Journal of Finance, American Finance Association, vol. 76(1), pages 357-394, February.
    8. Machokoto, Michael & Chipeta, Chimwemwe & Aftab, Nadeem & Areneke, Geofry, 2021. "The financial conservatism of firms in emerging economies," Research in International Business and Finance, Elsevier, vol. 58(C).
    9. Ibrahim M. Menshawy & Rohaida Basiruddin & Nor‐Aiza Mohd‐Zamil & Khaled Hussainey, 2023. "Strive towards investment efficiency among Egyptian companies: Do board characteristics and information asymmetry matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2382-2403, July.
    10. Li, Weibo & Yuan, Bingru, 2024. "Intellectual property protection and M&A performance," Finance Research Letters, Elsevier, vol. 64(C).
    11. Gomez Biscarri, Javier & Lopez Espinosa, German, 2008. "The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model," Journal of Multinational Financial Management, Elsevier, vol. 18(4), pages 369-388, October.
    12. Yang, Zhonghai & Song, Pingting & Xu, Meng & Li, Yingmei, 2024. "Environmental, social and governance performance and equity mispricing: Does embedded information mediation matter?," Finance Research Letters, Elsevier, vol. 67(PB).
    13. Tang, Tanya Y.H. & Firth, Michael, 2012. "Earnings Persistence and Stock Market Reactions to the Different Information in Book-Tax Differences: Evidence from China," The International Journal of Accounting, Elsevier, vol. 47(3), pages 369-397.
    14. Hu, Juncheng, 2021. "Do facilitation payments affect earnings management? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 68(C).
    15. Lee, Chien-Chiang & Wang, Chih-Wei & Huang, Chun-Wei & Sharma, Susan Sunila, 2025. "Corporate dividend behavior under uncertainty: A study of Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    16. Jebran, Khalil & Chen, Shihua & Tauni, Muhammad Zubair, 2019. "Principal-principal conflicts and corporate cash holdings: Evidence from China," Research in International Business and Finance, Elsevier, vol. 49(C), pages 55-70.
    17. Farshid Navissi, 1999. "Earnings Management under Price Regulation," Contemporary Accounting Research, John Wiley & Sons, vol. 16(2), pages 281-304, June.
    18. Jyrki Niskanen & Jukka Karjalainen & Mervi Niskanen & Jussi Karjalainen, 2011. "Auditor gender and corporate earnings management behavior in private Finnish firms," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(9), pages 778-793, October.
    19. Sebastian Lebert & Ulf Mohrmann & Ulrike Stefani, 2021. "Rounding up performance measures in German firms: Earnings cosmetics or earnings management on a larger scale?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 564-586, March.
    20. Manal Alidarous & Fouad Jamaani, 2021. "The Concurrent Effects of IFRS Mandate and Formal Institutional Quality on the Aftermarket Performance of IPO Firms in Emerging Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(3), pages 320-344, May.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:10:y:2022:i:6:p:140-:d:838583. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager The email address of this maintainer does not seem to be valid anymore. Please ask MDPI Indexing Manager to update the entry or send us the correct address (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.