Abstract
This study has two main objectives. The first is to examine the impact of Earnings Management (EM) on dividend policy for the Kuwait’s industrial and service sectors. The second is to sieve out the possible explanations for the conflicting results regarding this topic. Using Modified Jones Model, a sample of 46 companies listed on the Kuwait Stock Exchange with a total of (184) firm-year observations form the period 2011-2016 reveals an absence of a significant relation between EM and dividend policy. In addition, this paper posits a possible relationship between EM, dividend policy and market maturity.
Highlights
Corporate managers generally encounter some crucial decisions regarding their company’s finances
In line with our expectations, this paper hypothesizes that Earnings Management (EM) has no significant impact on dividend policy in industrial and service companies listed on the Kuwait Stock Exchange
Our results indicate the absence of a significant relation between EM and dividend policy
Summary
Corporate managers generally encounter some crucial decisions regarding their company’s finances. In this regard, dividend policy decisions are sine qua non financial decisions as they are perceived as a symbol of good financial standing. Despite the commendable strides of prior research so far, the debate about EM as a predictor for dividend policy decisions is still unsettled. This debate was fragmented by the view that dividends can be a predictor of earnings and earnings can be a predictor of dividends. It is not surprising that the reigning assumption in prior literature assumes that managers are motivated to manipulate earnings and utilize creative accounting through dividends (Shah, Yuan & Zafar, 2010)
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