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Dividend Policy and Earnings Quality: A Curvilinear Relationship

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  • Ghassen Allani

    (UPHF - Université Polytechnique Hauts-de-France, LARSH - Laboratoire de Recherche Sociétés & Humanités - UPHF - Université Polytechnique Hauts-de-France - INSA Hauts-De-France - INSA Institut National des Sciences Appliquées Hauts-de-France - INSA - Institut National des Sciences Appliquées)

  • Yves Mard

    (CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA [2017-2020] - Université Clermont Auvergne [2017-2020])

Abstract

This paper examines the impact of dividend policy on earnings quality in the French context over the period 1994-2018. Using four measures of earnings quality, we find an inverted U-shaped relationship between dividend level and earnings quality. Dividend level positively influences earnings quality up to a certain payout level. Beyond this threshold, the dividend increase is detrimental to earnings quality. We also observe that the decrease in earnings persistence observed for high values of dividend ratios is explained by earnings management. Moreover, we find that the curvilinear relationship between dividend level and earnings quality is moderated for large firms and firms with volatile dividends. Our results in the French context extend the existing literature and reconcile the mixed results in previous research.

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  • Ghassen Allani & Yves Mard, 2024. "Dividend Policy and Earnings Quality: A Curvilinear Relationship," Post-Print hal-04415679, HAL.
    • Handle: RePEc:hal:journl:hal-04415679
    Note: View the original document on HAL open archive server: https://hal.science/hal-04415679
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    References listed on IDEAS

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    1. Robert M. Bowen & Shivaram Rajgopal & Mohan Venkatachalam, 2008. "Accounting Discretion, Corporate Governance, and Firm Performance," Contemporary Accounting Research, John Wiley & Sons, vol. 25(2), pages 351-405, June.
    2. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    3. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    4. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
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    Keywords

    Dividend policy; Earnings quality; Curvilinear relationship;
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