The Effect of Earning Management on Dividend Payouts and the Mediating Role of Financial Leverage

Abstract

This research aims to test the effect of earning management on dividend payout with a moderating role of financial leverage on this relationship in the banking sector in Palestine Exchange and Amman Stock Exchange during the period 2009 to 2018 with a total 210 firm year observations. (Yoon et al. 2006) model is used to measure earning management through discretionary accruals. The model is estimated using panel general least square. The results of the relationship between earning management and dividend payout in the Palestinian and Jordanian banking sector showed that there is a positive effect of practicing earning management on cash dividend payout, but this effect is not significant with total dividends and stock dividends. Leverage is positively and significantly affecting the relationship between earnings management and cash dividend payout. The relationship is insignificant with other types of dividends. The implication of this study is that the relationship between the earning management and dividend policy is significant. That presence of significance relationship is not suitable for investors. Strongly recommend that there should not be any relationship between earning management and dividend policy. That significant relationship can be reduced by controlling on discretionary accruals. This research will help the management that by reducing the operational expenses of the companies will effectively manage their earnings. So, the impact of earning management on dividend policy can be reduced.

An Assessment of the Determinants of Earnings Management in Nigeria

“…Firm size which according to Samiloglu, et al (2017) is a determinate of firm performance and earnings per share. Empirical Review Rashwan, Melhem, Nour, and Atout (2023) investigated the impact of earning management on dividend payout, while also examining the moderating influence of financial leverage on this association found a correlation between earning management and dividend payout in the banking industry of Palestine and Jordan indicate a favourable impact of earning management on cash dividend payout. In their study Aqabna, Aga, and Jabari (2023) investigated the correlation between corporate social responsibility (CSR) and the performance of firms in the MENA region, both pre and post the COVID-19 pandemic.…”