The Effect of Earnings Management on Dividend Policy in Pakistan

Abstract

The aim of this study was to find out the impact of earnings management on dividend policy of oil and gas companies listed at the Karachi stock exchange. The study uses annual data of oil and gas companies for the period from 2008 to 2015. The dependent and independent variables are dividend policy and earnings management and the three control variables are leverage, return on equity and firm size. Modified cross sectional Jones model (1995) was used for calculating discretionary accruals which has been used as proxy for earnings management whereas measurement of dividend policy has been proxy by dividend payout. The findings from regression analysis indicate that earnings management has insignificant relationship with dividend policy of selected firms in Pakistan. Financial crisis in the world and economic decline period are the main reasons of this relationship. In the decline period the firms try to increase manipulation in earnings as a result the company starts reducing dividend payments. It is concluded that there are some other factors that may influence the pattern of dividend payment in the firms.

Earnings Management and Dividend Policy: Evidence from a Frontier Market

“…Using panel lest square analysis, the study found that there is a negative relationship between DPS and P/E ratio is in both cement and fertilizer sector, which is the same as the result of Aurangzeb and Dilawer (2012) study done in the textile sector. The study also indicated that there is a positive relationship between DPS and P/E ratio in the food and oil and gas sector, which is different from the result of Saleem and Alifiah (2017) study in oil and gas companies. Further, the study concludes that because the nature of the industry differs from each other, the relationship may not be consistent between industries.…”

“…In the Nigerian context, Ajide and Aderemi (2014) examined the effects of earnings management on dividend policy by using quoted non-financial institutions. Saleem and Alifiah (2017) employed five variables, namely, dividend payout (DPO), discretionary accruals (DA) -calculated using Modified Jones model, size of the firm (SF), return on equity (ROE), and financial leverage (LEV) of the firm in the context of Pakistan. However, the results indicated that earning management expressed a positive relationship with dividend policy.…”

The Impact of Earnings Management on Dividend Policy: Evidence From Kuwait

“…positive, negative and neutral) for the relation between dividends policy and EM. Consistent with Shah et al (2010), Tangestani et al (2016) and Saleem & Alifiah (2017), our results reiterated the absence of a significant relationship between dividend policy and EM in the Kuwaiti market.…”

“…Their results confirmed that in both countries EM has no impact on dividend policy. Saleem & Alifiah (2017) examined the effect of earnings management on dividend policy for (104) Pakistani listed companies' between 2008 and 2015. The study adopted the dividend payout ratio and Dechow et al (1995) and showed no significant relationship.…”

Les déterminants de la distribution de dividendes Le cas des banques privées algériennes

“…Plusieurs proxys ont été utilisés pour mesurer la variable à expliquer à l'instar du ratio des dividendes versés, du rendement de dividende, des dividendes par action et des dividendes sur total actif. Cependant, pour notre étude, le choix s'est porté sur le ratio des dividendes versés qui est calculé comme suit [ (Saleem & Alifiah., 2017), (Abreu & Gulamhussen., 2013), Rozeff (1979)] :…”