Dividend Policy and Fraudulent Financial Reporting

This paper investigates the relation between fraudulent financial reporting and firms’ dividend policies. Specifically, this research concentrated on situations that it is possible to classify financial restatement into fraudulent and non-fraudulent based on the management’s incentives for discretionary accounting choices . The data is related to 247 firms (consisted of 2,238 firm-year observation) during 1381-1390. A Meet-or-beat model was used to classify firms as making discretionary accounting choices for opportunistic meet-or-beat. Furthermore, a fixed effects logistic regression with panel data was used to test hypothesis. Results show that dividend-paying firms have less likelihood to engage in fraudulent financial reporting furthermore, the negative association between dividend paying status and fraudulent financial reporting is stronger when the size of dividend payouts is larger .Overall, results suggest firm’s dividend policy is indicative of its earnings quality. Specifically, dividend policy unfolds the manager’s incentives for financial restatements.