Does Dividend Policy Drive Earnings Smoothing?

2014 ◽  
Vol 28 (3) ◽  
pp. 501-528 ◽  
Author(s):  
Nan Liu ◽  
Reza Espahbodi
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Earnings Persistence ◽  
Spurious Correlation ◽  
Earnings Smoothing ◽  
Alternative Measures ◽  
Jel Classifications

SYNOPSIS This paper examines the earnings-smoothing behavior of dividend-paying firms. We show that dividend-paying firms engage in more earnings smoothing than non-payers through both real activities and accrual choices. More specifically, dividend-paying firms with positive (negative) pre-managed earnings changes engage in more downward (upward) earnings management than non-payers. Additional tests suggest that the results are driven by dividend-related incentives and not the differences in the economic characteristics of dividend-paying firms, are robust to alternative measures of earnings management, and are not due to spurious correlation. We also show that earnings smoothing, in part, explains the higher earnings persistence of dividend-paying firms. These findings are consistent with a firm's dividend policy having an incremental impact on earnings-smoothing behavior. JEL Classifications: M41; G35

scholarly journals The Benefits of Conservative Accounting to Shareholders: Evidence from the Financial Crisis

2013 ◽  
Vol 27 (2) ◽  
pp. 319-346 ◽  
Author(s):  
Bill Francis ◽  
Iftekhar Hasan ◽  
Qiang Wu
Keyword(s):  
Financial Crisis ◽  
Firm Value ◽  
Governance Mechanism ◽  
Current Crisis ◽  
Stock Performance ◽  
Conservative Accounting ◽  
Alternative Measures ◽  
Recent Financial Crisis ◽  
And Control ◽  
Jel Classifications

SYNOPSIS Using the recent financial crisis as a natural quasi-experiment we test whether, and to what extent, conservative accounting affects shareholder value. We find that there is a significantly positive and economically meaningful relation between conservatism and firm stock performance during the current crisis. The result holds for alternative measures of conservatism and is validated in a series of robustness checks. We further find that the relation between conservatism and firm value is more pronounced for firms with weaker corporate governance or higher information asymmetry. Overall, our paper complements LaFond and Watts (2008) by providing empirical evidence to their argument that conservatism is an efficient governance mechanism to mitigate information risk and control for agency problems, and that shareholders benefit from it. JEL Classifications: M41; M48; G01.

scholarly journals Earnings Management through Tax Reserves and Auditor-Provided Tax Services

2017 ◽  
Vol 6 (4) ◽  
pp. 217
Author(s):  
Chunlai Ye
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Income Smoothing ◽  
Earnings Forecast ◽  
Large Firms ◽  
Fin 48 ◽  
Management Incentives ◽  
Consensus Forecasts ◽  
Earnings Smoothing ◽  
Tax Reserves

This study investigates whether firms continue to use tax reserves to achieve financial reporting objectives in the post-FIN 48 period and the effect of auditor-provided tax services on earnings management through tax reserves. Three types of earnings management incentives are considered in this study: meeting or beating the consensus forecasts, income smoothing, and taking an “earnings bath.” The analyses yield evidence that only non-large firms manipulate tax reserves to meet/beat earnings forecast in the post-FIN 48 period; however, tax reserves are still utilized by both large and non-large firms to smooth earnings. Moreover, evidence is provided that the auditor who provides more tax services facilitates large firms’ earnings smoothing in the post-FIN 48 period, implying independence impairment. But this behavior does not exist within non-large firms, arguably because the auditor does not compromise independence for less important clients.

scholarly journals Dividend Policy and Earnings Management Across Countries

2015 ◽  
Author(s):  
Wen He ◽  
Lilian K. Ng ◽  
Nataliya S. Zaiats ◽  
Bohui Zhang
Keyword(s):  
Earnings Management ◽  
Dividend Policy

Auditors' Constraining Effect on Tax Noncompliance at Different Book-Tax Conformity Levels in a Transition Economy

2016 ◽  
Vol 15 (3) ◽  
pp. 1-30 ◽  
Author(s):  
K. Hung Chan ◽  
Rebecca Luo ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Earnings Management ◽  
Transition Economy ◽  
Tax Compliance ◽  
High Quality ◽  
Auditor Quality ◽  
Direct Linkage ◽  
Tax Reporting ◽  
Jel Classifications ◽  
Tax Noncompliance

ABSTRACT This study examines how differential auditor quality can affect clients' tax noncompliance at different book-tax conformity levels. Overall, we find that high-quality auditors are associated with client firms' better tax compliance. Specifically, high-quality auditors are effective in constraining book-tax-conforming noncompliance because of the direct linkage between financial and tax reporting for such noncompliance at both the higher and the lower conformity periods. In contrast, high-quality auditors' constraining effect on book-tax-difference noncompliance is significant only in the lower conformity period when there are more opportunities for reporting irregularities. Furthermore, firms that switch from a low- to a high-quality auditor have better tax compliance after the switch. This study contributes to the literature by providing evidence that high-quality auditors not only can constrain clients' earnings management, but can also constrain tax noncompliance. JEL Classifications: M41; M42.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

Clawbacks and Earnings Management

2018 ◽  
Vol 31 (3) ◽  
pp. 129-151 ◽  
Author(s):  
Carolyn B. Levine ◽  
Michael J. Smith
Keyword(s):  
Numerical Analysis ◽  
Earnings Management ◽  
Cash Flows ◽  
Data Availability ◽  
Real Earnings Management ◽  
Interim Report ◽  
Short Term ◽  
Period Model ◽  
Jel Classifications

ABSTRACT This study addresses the effect of clawbacks on earnings management (EM). In a two-period model, the manager can report truthfully or distort an interim report using either accrual or real EM. The principal can make short-term payments based on a manipulable accounting signal and long-term payments based on unmanipulable cash flows. The strength of the clawbacks determines the likelihood that the manager's compensation is reclaimed when the interim report was managed. Stronger clawback provisions may result in (1) a substitution between accrual and real earnings management, or (2) earnings management when no earnings management was optimal with weak clawbacks, and (3) lower expected profits for the principal. Numerical analysis suggests that strong clawbacks do not reduce aggregate earnings management. JEL Classifications: J33; M48; M52; G38. Data Availability: All data are simulated.

Long-Term Orientation and Earnings Management Strategies

2019 ◽  
Vol 18 (3) ◽  
pp. 97-119 ◽  
Author(s):  
Jesper Haga ◽  
Fredrik Huhtamäki ◽  
Dennis Sundvik
Keyword(s):  
Earnings Management ◽  
High Precision ◽  
Management Strategy ◽  
Management Strategies ◽  
Real Earnings Management ◽  
Short Term ◽  
Country Level ◽  
Earnings Benchmarks ◽  
Jel Classifications

ABSTRACT In this study, we investigate how country-level long-term orientation affects managers' willingness to engage in earnings management and choice of earnings management strategy. Using a comprehensive dataset of 47 countries for the period from 2003 to 2015, we find that firms in long-term-oriented cultures rely relatively more on earnings management through accruals, while firms in short-term-oriented cultures engage in relatively more real earnings management. Furthermore, we find a larger discontinuity around earnings benchmarks in long-term-oriented cultures suggesting that manipulation of accruals enables benchmark beating with high precision. JEL Classifications: M14; M16; M21; M41.

scholarly journals The Impacts of Earnings Quality on Dividend Policy of Listed Enterprises in Vietnam

2020 ◽  
Vol 11 (3) ◽  
pp. 200
Author(s):  
Dau Hoang Hung ◽  
Dang Ngoc Hung ◽  
Nguyen Viet Ha ◽  
Vu Thi Thuy Van
Keyword(s):  
Structural Equation ◽  
Dividend Policy ◽  
Earnings Quality ◽  
Positive Influence ◽  
Equation Modeling ◽  
Earnings Persistence ◽  
Research Results ◽  
Intermediate Variable ◽  
Multiple Dimensions ◽  
The Impact

The paper examines the impact of earnings quality (EQ) on the dividend policy of enterprises in Vietnam. We consider the EQ in terms of multiple dimensions such as accruals quality, earnings persistence, revelance and timeliness of earning information. The study uses regression method according to Structural Equation Modeling (SEM), with EQ as an intermediate variable, data collected at enterprises listed on the stock market in Vietnam in the period of 2010 - 2018, with 4541 observations. The research results have found that EQ has a positive influence on dividend policy on all aspects of EQ. The empirical research results are a useful basis to help enterprises improve EQ, thereby helping business in implementing appropriate dividend policy.

The Effect of Earnings Management on Dividend Policy in Pakistan

2017 ◽  
Vol 9 (1-3) ◽  
Author(s):  
Faiza Saleem ◽  
Mohd Norfian Alifiah
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Oil And Gas ◽  
Stock Exchange ◽  
Annual Data ◽  
Cross Sectional ◽  
Return On Equity ◽  
Dividend Payments ◽  
Oil And Gas Companies ◽  
The Impact

The aim of this study was to find out the impact of earnings management on dividend policy of oil and gas companies listed at the Karachi stock exchange. The study uses annual data of oil and gas companies for the period from 2008 to 2015. The dependent and independent variables are dividend policy and earnings management and the three control variables are leverage, return on equity and firm size. Modified cross sectional Jones model (1995) was used for calculating discretionary accruals which has been used as proxy for earnings management whereas measurement of dividend policy has been proxy by dividend payout. The findings from regression analysis indicate that earnings management has insignificant relationship with dividend policy of selected firms in Pakistan. Financial crisis in the world and economic decline period are the main reasons of this relationship. In the decline period the firms try to increase manipulation in earnings as a result the company starts reducing dividend payments. It is concluded that there are some other factors that may influence the pattern of dividend payment in the firms.

scholarly journals Effects of Board Size, Board Composition and Dividend Policy on Real Earnings Management in the Jordanian Listed Industrial Firms

2020 ◽  
Vol 11 (4) ◽  
pp. 195
Author(s):  
Yousef Shahwan ◽  
Tareq Hammad Almubaydeen
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Structural Model ◽  
Negative Impact ◽  
Industrial Sector ◽  
Real Earnings Management ◽  
P Value ◽  
Board Composition ◽  
Board Size ◽  
The Impact

Earning manipulation has been a normal transaction among the global businesses, in which business organization sees it as beneficial, thereby turning black eyes to its negative impact on the general economy. This study aimed at examining the impact of board size, Board composition and dividend policy on real earnings management in the listed Jordanian industries. 8 years data (2010 to 2018) was extracted from the audited financial reports of the selected firms. Data was analyzed using Structural Model via AMOS version 26 and SPSS version 21. The findings revealed a positive and significant effect between board size, board composition and real earning management at p-value<0.05 and 0.001 (two-tailed) respectively. While negative of dividend policy on REM was recorded at p-value>0.05 (two-tailed). This study has immensely contributed towards bridging the gap in the existing knowledge as it documented a new finding. The benefits of these findings cross over the managers, shareholders, board of directors, investors, the Jordanian government and all other relevant institute for the buildup of the healthiest industrial sector and better economy.

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