Abstract
We investigated the effect of dividend decisions on the earnings management (EM) practice of Brazilian companies. This association is based on agency theory, since free cash flow, if not employed in projects of shareholders’ interest, can be expropriated by managers and used for their own benefit. By examining a sample of 2,600 non- financial publicly and privately held companies, from Standard & Poor's Capital IQ database, we found evidence to support the hypothesis that dividend-payers firms show a less aggressive earnings management than non-payers. We also conclude that differences in institutional transparency and investor protection in a country level does not play a significant role in this context.
Published Version
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