Dividend Policy and Earnings Management Across Countries

41 Pages Posted: 8 Nov 2015 Last revised: 16 May 2017

See all articles by Wen He

Wen He

University of Queensland - Business School

Lilian Ng

Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

Nataliya S. Zaiats

Suffolk University - Sawyer School of Management

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: November 1, 2016

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.

Keywords: Dividends, Earnings management, Agency problems, Investor protection, Equity issuance

JEL Classification: G15, G34, G35, G38, M41

Suggested Citation

He, Wen and Ng, Lilian and Zaiats, Nataliya S. and Zhang, Bohui, Dividend Policy and Earnings Management Across Countries (November 1, 2016). Journal of Corporate Finance 42, 2017, 267-286, Available at SSRN: https://ssrn.com/abstract=2686897 or http://dx.doi.org/10.2139/ssrn.2686897

Wen He

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Lilian Ng

Schulich School of Business, York University ( email )

N223, Seymour Schulich Building
4700 Keele Street
Toronto, Ontario ON M3J 1P3
Canada
+1.416.736.2100 x77994 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Nataliya S. Zaiats (Contact Author)

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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