Given the importance of historical dividend policy to firms, I investigate whether dividend payers manipulate earnings through real activities to smooth dividend levels and dividend payout ratios. Using Compustat’s Execucomp database, I find evidence that dividend policy impacts both upward and downward real earnings management. I find that payers manipulate earnings upward through real activities to mitigate the shortfall of pre-managed earnings relative to prior year dividends when pre-managed earnings are lower than dividends paid in the prior year, suggesting that dividend levels are an important earnings benchmark. I document a stronger relationship between changes in pre-managed earnings and real earnings management for payers than for non-payers, suggesting that dividend policies impact real earnings management. Consistent with the importance of dividend policy in real earnings management, I show that dividend payers that follow conservative dividend policies manipulate earnings to a greater extent than dividend payers that do not follow conservative dividend policies.
| Identifer | oai:union.ndltd.org:GEORGIA/oai:digitalarchive.gsu.edu:accountancy_diss-1010 |
| Date | 11 August 2011 |
| Creators | Liu, Nan |
| Publisher | Digital Archive @ GSU |
| Source Sets | Georgia State University |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | Accountancy Dissertations |
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