Dividend Policy and Earnings Management: An Empirical Study of Pakistani Listed Companies

Dividend policy is one of the widely addressed topics in financial management. It is an important duty of a financial manager to formulate the company's dividend policy that is in the best interest of the company. Many a time financial managers are involved in earnings management practices with the intention of adjusting dividends. The present study has been carried out to scrutinize the effect of earnings management on dividend policy. The researchers have taken the data of 86 listed companies for the year 2004 to 2009. The researchers have measured the dividend policy by using dividend payout ratio while Modified Cross Sectional Jones Model (1995) has been employed to measure the earnings management. The results of the common effect model show that there is not any significant relationship among earnings management and dividend policy. Moreover, smaller companies are paying more dividends as compared to larger companies. This study reveals that involvement of managers is not for dividend policy. There might be some other motives behind the earnings management.

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EARNINGS MANAGEMENT AND DIVIDEND POLICY OF SMALL AND MEDIUM ENTERPRISES IN THAILAND1

International Journal of Business and Society ◽

10.33736/ijbs.527.2016 ◽

2017 ◽

Vol 17 (2) ◽

Author(s):

Supachet Chansarn ◽

Thanyakorn Chansarn

Keyword(s):

Earnings Management ◽

Dividend Policy ◽

Small And Medium Enterprises ◽

Earnings Quality ◽

Listed Companies ◽

Discretionary Accruals ◽

Dividend Yield ◽

Absolute Term ◽

Percent Increase ◽

Medium Enterprises

This study aims to examine earnings management of 51 small and medium enterprises listed inMarket for Alternative Investment (MAI) of Thailand during 2005 – 2012. Earnings managementin this study is measured by discretionary accruals based on Kasznik Model (Kasznik, 1999) andKothari Model (Kothari et al., 2005). Additionally, this study also investigates the influence ofearnings management on dividend policy of these companies which are measured bytwo indicators, including dividend payout ratio and dividend yield, by employing fixed andrandom effects regression analyses. The findings reveal that listed companies in MAI had highearnings management due to high average discretionary accruals in absolute term whichequalled 11.91 percent of total assets based on Kasznik Model and 12.55 percent of total assetsbased on Kothari Model. Moreover, earnings management is found to have the positive influenceon dividend yield of listed companies in MAI. That is, one percent increase in discretionaryaccruals in absolute term as percentage of total assets will lead to about 0.2 percent increasein dividend yield. In contrast, earnings management is found to have no influence on dividendpayout ratio.Keywords: Earnings Management; Earnings Quality; Dividend Policy; SMES; Market forAlternative Investment; Thailand.

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