Investigating the Relationship between Corporate Governance and Dividend Quality with the Adjusting Role of Free Cash Flow

Different ownership structure and active shareholders’ roles may lead to a change in companies’ behavior. In the present study, corporate governance utilizes the components of institutional and managerial ownership as independent variables, free cash flow as adjusting variable,  return on assets as control variables, and dividend quality as dependent variable. In this study, the data was analyzed using fixed effect regression and the data of 136 companies listed in Tehran Stock Exchange during the period 2010-2015 was used. The findings of this research indicated that there is a significant and direct relationship between institutional ownership and management ownership and earnings quality. Moreover, the effect of free flow of cash on the relationship between institutional ownership, management ownership and the quality of profit is negative and significant. This result is consistent with the findings of Jensen (2004), Aligholi et al. (2015), and Philsaraei et al. (2012) but is inconsistent to the findings of Mashayekh et al. (2006) and this inconsistency may be attributed to such factors as economic downturn influencing Iranian capital market