| Autor: |
Mehwish Aziz Khan, Ferheen Kayani, Syed Zulfiqar Ali Shah, Ahmed Arif |
| Rok vydání: |
2011 |
| Předmět: |
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| Zdroj: |
Information Management and Business Review. 3:68-77 |
| ISSN: |
2220-3796 |
| Popis: |
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. Miller & Modigilani's "Irrelevance Theorem" is the starting point for any discussion about dividends. This theorem states that investment policy of the firm is predetermined and irreversible. The dividend policy does not play any role in the determination of firm's value. The price of firm's equity in the market may rise proportionately with earnings. Whereas, in case of distribution of dividends, financing can be obtained by means of raising funds in capital market and the value of firm's equity may decrease proportionally to its dividend payout. Therefore, the distribution of dividend does not make any difference for the capital market. The shareholders of a firm are always interested in the profitability of firm. The confidence of shareholders is boosted up due to high profitability of the firm. They feel encouraged to invest in shares of the companies having stable earnings. The shareholders are also interested to know about the earnings of the company as they hope to receive dividend if company is earning healthy profits (Kasanen, Kinnunen and Niskanen, 1999). The managers are often found involved in earnings management to generate a signal to the shareholders. The discussion about the relationship of dividend and earnings was started from the work of Lintner (1956). The managers report their earnings to make the adjustments in dividends. Moreover, the stock prices of a company are not directly manipulated by its executives; rather they conduct earnings management practices |
| Databáze: |
OpenAIRE |
| Externí odkaz: |
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