The effect of financial reporting quality on dividend policy - International evidences

Abstract

This study aims to test the relationship between financial reporting quality and dividend payments for the international market. We find that financial reporting quality has a positive impact on dividends for non financial firms over 126 countries for the period of 2000 to 2019. The evidence is robust when we use alternative measurements for financial reporting quality. Besides, the positive association is stronger for firms with more severe free cash flow problems, or higher financial constraints, or firms located in countries that have high protection for minority shareholders. In contrast, the positive relationship is less pronounced for firms in countries following international financial reporting standards (IFRS). Moreover, further analysis shows that high reporting quality can mitigate the under payment and induce the over-payment of dividends.