Dividend Policy and Earnings Quality: A Curvilinear Relationship

Ghassen Allani (1, 2) , Yves Mard (3)

1 UPHF - Université Polytechnique Hauts-de-France
2 LARSH - Laboratoire de Recherche Sociétés & Humanités
3 CleRMa - Clermont Recherche Management

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.

Keywords: Dividend policy; Earnings quality; Curvilinear relationship

Domains: Business administration

Ghassen Allani, Yves Mard. Dividend Policy and Earnings Quality: A Curvilinear Relationship. Comptabilité Contrôle Audit / Accounting Auditing Control, inPress. ⟨hal-04415679⟩