Dividend Policy and Informativeness of Reported Earnings: Evidence from the MENA Region

Omar Farooq · Nermeen F. Shehata · Siva Nathan

19 citations0/0 files storedInternational Review of Finance

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

Abstract This paper documents that informativeness of reported earnings, measured by earnings–return relation, is an increasing function of dividend payout ratio in the Middle East and North Africa region during the period between 2003 and 2014. We argue that higher dividends reduce agency conflicts. Lower agency problems lead firms to disclose information more truthfully, thereby improving credibility of reported earnings. We also show that our results hold for various proxies of dividend policy.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 2000Investor protection and corporate governance 1985Dividend Policy under Asymmetric Information 1979Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy 2002Corporate ownership structure and the informativeness of accounting earnings in East Asia 1980Disclosure Laws and Takeover Bids 2006Institutional ownership and the quality of earnings

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