The Earnings Quality Information Content of Dividend Policies and Audit Pricing

Abstract

Recent studies indicate dividends are associated with higher‐quality earnings. Our study extends the literature by examining whether dividends' information is associated with auditors' assessment of their clients' earnings quality. Our results show that auditors charge lower fees to dividend‐paying clients than to nondividend‐paying clients and the average fee discount ranges from 6.0 to 10.6 percent. More importantly, we find dividends have an interactive effect with respect to earnings persistence and earnings manipulation: the negative association between audit fees and earnings persistence is more pronounced for dividend firms; and dividend payouts mitigate the positive relation between earnings manipulation risk and audit fees. Our results imply dividends reduce audit risk by enhancing clients' earnings quality information. We contribute to the literature by showing that auditors reflect the earnings quality information content of firms' dividend policies in their pricing decisions.

Dividend policy and bank opacity

“…They report that this effect is more pronounced in countries with weak investor protection and high opacity. Lawson and Wang () examine the information content of dividends through audit pricing and find that dividend‐paying firms pay lower audit fees than nonpayers. The authors explain that dividends provide information to auditors, reducing the concerns over the earnings quality of clients.…”

The impact of innate accruals quality on the future market value moderated by dividend policy

“…By examining Lilian et al (2012), the dividend has a signal of high obedience on accounting standard, because of the high involvement of shareholders in monitoring and checking the strategic decision. He et al (2017) found that the relationship between dividend and actual return has a positive effect; it strengthens Lawson and Wang (2016) by stressing on this policy as a guideline for nonmanipulation activity. Considering the advantages of dividend to level up the positive investor's perception maximally, so this research uses this policy as a moderation variable.…”

Earning Quality e o Desempenho das Companhias Brasileiras de Capital Aberto

“…A qualidade do lucro responde por importante parcela das pesquisas em contabilidade, podendo ser caracterizada como a capacidade de se sustentar no futuro, i. e., o lucro atual com alta (baixa) correlação com lucros futuros teriam alta (baixa) qualidade (Lustosa, Fernandes, Nunes, & De Araujo Junior, 2010 (Caskey & Hanlon, 2013;Dichev et al, 2013;Lawson & Wang, 2016), auditoria (Lambert, Jones, Brazel, & Showalter, 2017;Lennox, Wu, & Zhang, 2016), custo de capital (Affleck-Graves, Callahan, & Chipalkatti, 2002;Ghosh & Moon, 2010;Karamanou & Nishiotis, 2009;Lambert, Leuz, & Verrecchia, 2007;Liu, Ning, & Davidson III, 2010;Munteanu, 2011;Persakis & Iatridis, 2017), estrutura de governança corporativa (Athanasakou & Olsson, 2012;Choi, Lee, & Park, 2013;Core & Guay, 1999;El-Sayed Ebaid, 2013;Fan & Wong, 2002;Hazarika, Karpoff, & Nahata, 2012;Houqe & Zijl, 2010;Jiang & Anandarajan, 2009;Jiang, Lee, & Anandarajan, 2008;Kent, Kent, Routledge, & Stewart, 2016;Lin & Hwang, 2010;Machuga & Teitel, 2009;Sáenz González & García-Meca, 2014;Shiri, Vaghfi, Soltani, & Esmaeli, 2012;Shleifer & Vishny, 1997), adoção às International Financial Reporting Standards (IFRS) (Barth, 2013;Black & Nakao, 2017;Daske, Hail, Leuz, & Verdi, 2008;Healy & Palepu, 2001;…”