Dividend payment and financial restatement: US evidence

Abstract

PurposeThe purpose of this paper is to investigate the impact of financial restatement on corporate dividend payment. Firms that announce financial restatements rupture their corporate reputation and adversely affect investors’ confidence. Consequently, firms must attempt to regain lost reputation and market confidence.Design/methodology/approachThis study uses the US regulatory setting to examine the association between corporate dividend policy and financial restatement over the 2001–2017 financial years.FindingsThe findings evidence a robust positive association between financial restatement and dividend payouts, indicating that firms pay higher dividends following the year of financial restatement. Several sensitivity tests were conducted to confirm the robustness of the findings.Originality/valuePrior research indicates that corporate dividend payouts enhance a firm’s reputation by reducing information asymmetry and providing a positive signal to investors regarding future financial performance. This study provides valuable evidence that dividend payout can be used as a channel for image restoration by firms with lost reputations because of financial restatement.