The Earnings Quality Information Content of Dividend Policies and Audit Pricing

54 Pages Posted: 7 Mar 2015 Last revised: 20 Apr 2018

See all articles by Bradley Lawson

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting

Dechun Wang

Texas A&M University

Date Written: February 28, 2015

Abstract

Recent studies indicate dividends are associated with higher quality earnings. Our study extends the literature by examining whether dividends’ information is associated with auditors’ assessment of their clients’ earnings quality. Our results show that auditors charge lower fees to dividend-paying clients than to non-dividend-paying clients and the average fee discount ranges from 6.0-10.6 percent. More importantly, we find dividends have an interactive effect with respect to earnings persistence and earnings manipulation: the negative association between audit fees and earnings persistence is more pronounced for dividend firms; and dividend payouts mitigate the positive relation between earnings manipulation risk and audit fees. Our results imply dividends reduce audit risk by enhancing clients’ earnings quality information. We contribute to the literature by showing that auditors reflect the earnings quality information content of firms’ dividend policies in their pricing decisions.

Keywords: dividend policy, audit pricing, information content, earnings quality

JEL Classification: G35, M41, M42

Suggested Citation

Lawson, Bradley and Wang, Dechun, The Earnings Quality Information Content of Dividend Policies and Audit Pricing (February 28, 2015). Contemporary Accounting Research, Forthcoming, Mays Business School Research Paper No. 2574293, Available at SSRN: https://ssrn.com/abstract=2574293 or http://dx.doi.org/10.2139/ssrn.2574293

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
415 Business Building
Stillwater, OK 74078
United States

Dechun Wang (Contact Author)

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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