Who Watches the Payers? Dividend Policy and Earnings Management Among Swedish Firms

Sammanfattning

This paper examines whether dividend payments status affects a firm's earnings management practices (EM) using the absolute discretionary accruals proxy. We find evidence that paying dividends is associated with a decrease in the absolute value of discretionary accruals. We also find evidence that the strength of this relationship increases with payout ratio up to a point, after which this effect attenuates. Lastly, we find that both firm size and listed status moderate the dividends EM association such that the negative association between dividends and EM is weaker when the firm is large and stronger when the firm is publicly listed. Overall, our findings suggest that a firm's dividend paying status indicates higher earnings quality by reducing earnings management.