Research On The Relationship Between Dividend Policy And Earnings Management

Dividend policy and earnings management are both important parts ofcorporate management, causing great attention of different social sectors. Thedevelopment of China’s stock market has short history, and has the specialshareholder structure. These make our dividend policy shows Chinesecharacteristics, such as no dividend, micro cash dividends and excess cashdividends. All of these are likely to be caused by earnings management.Earnings management is a universal phenomenon in China’s capital market,including accrued earnings management and real earnings management. Themotivations and means of earnings management are various, and the cashdividend can be one of them.Obviously, there is a close relationship between dividend policy andearnings management. Although the scholars at home and abroad mostly focuson one of aspects, while pay little attention on their relationship. Theconnection points mainly display in two aspects: on one hand, one of theconsequences of earnings management is the impact on the dividend policy;on the other hand, cash dividends may be one of the motives of earningsmanagement.Therefore, the thesis explores the relationship between dividend policyand earnings management from two aspects. Based on the consequences ofearnings management, we study and compare the influence of the accruedearnings management and real earnings management on the dividend policy.In addition, based on the earnings management motivation, starting with cashdividend for tunneling, we empirically test that premeditated cash dividendwhether will drive companies to manage earnings. The research aims toregulate the behavior of dividend distribution and identify earningsmanagement in full-circulation stage.The thesis adopts the data from2009to2012, uses T test and multiple regression method to empirical test. The main research conclusions are asfollows:(1) The accrued earnings management with dividend distribution issignificant positive correlation, including cash dividend and stock dividend,which suggest that China’s listed companies paid dividends for itsmanipulated accrued profits, in order to cover up their accrued earningsmanagement behavior, to cater to investors’ expectations or for tunneling.(2)According to the measurement model of accrual earnings management,through surplus decomposition, we find the cash dividend main from the nonmanipulated accrued surplus, the stock dividend is just the opposite, mainlycomes from the manipulated surplus.(3) There is a strong negative correlationbetween the real earnings management and cash dividend, but stock dividendhas no significant relationship with the real earnings management. Mainlybecause real earnings management has great damages and its methods arerelatively hidden, so the companies don’t have strength or necessary to paydividends.(4) Cash dividend for tunneling is significantly positive correlationwith accrued earnings management, but isn’t significant with real earningsmanagement, which shows that the controlling shareholders use cash dividendfor tunneling are more likely to engage in accrued earnings managementwhich has relatively small damages, but will not engage in real earningsmanagement which has huge damages to companies.