Earnings Management and Dividend Policy: Testing Audit Quality for the Moderating Effect

Abstract

The study is about the moderating effect of audit quality on the relationship between earning management and dividend policy in manufacturing sector of Pakistan. Firms listed in Pakistan Stock Exchange (PSE) have been considered to investigate the effect of earnings management on dividend policy from 2010 to 2016 in Pakistan. The dividend policy is calculated by dividend payout ratio whereas the discretionary accruals have been used for the measurement of earning management and this is taken as a proxy to estimate the earning management. The modified cross sectional model is adopted to quantity discretionary accruals. From the analysis, it is concluded that earning management has influence on dividend policy which rejects null hypothesis of the study. The regression coefficients explain that the connection is too weak that it is most near to no connection. The reason of this no connection or influence is financial decline time period, as earning management varies annually.