The moderating effect of corporate liquidity on the relationship between financial reporting quality and dividend policy: evidence from Saudi Arabia

Abstract

Purpose The purpose of this paper is to examine the impact of financial reporting quality (FRQ) on dividend policy. This paper also examines the moderating role of corporate liquidity on the FRQ–dividend policy relationship. Design/methodology/approach The sample of this paper contains 113 non-financial companies listed on the Saudi Stock Exchange from 2003 to 2019 (1,675 firm-year observations). The authors use OLS regressions to test the hypotheses. Findings The authors find a positive relationship between FRQ and dividend policy. They also find that the positive effect of FRQ on dividend policy is not strengthened by the presence of corporate liquidity. Research limitations/implications The findings of this study offer implications for stakeholders, including investors and others in Saudi Arabia and other developing countries with comparable business environments. This is because of the significant impact of the dividend policy on a company’s value, as it is a crucial decision that involves distributing substantial amounts of money to shareholders on a regular basis and interacts with other critical decisions within the company. Therefore, the dividend policy has a crucial role in determining the company’s value, which is reflected in its stock prices. Originality/value To the best of the authors’ knowledge, this is the first study in Saudi Arabia that provides new empirical evidence on the impact of FRQ on dividend policy and the moderating role of corporate liquidity on this relationship.

Audit Quality, Institutional Environments, and Earnings Management: An Empirical Analysis of New Listings

“…The first interpretation is that the Big Four does not curb earnings management in Vietnam. This result is consistent with the finding of Jeong and Rho (2004), Algharaballi (2013), Habbash andAlghamdi (2017), andAlsultan (2017).…”

“…Measuring Control Variables. In order to control the disproportion of firms' earnings management based on characteristics of firms and to control other cross-sectional effects, several control variables are included in the models including: firm size (Gill et al, 2014;Gong et al, 2008;Kamel, 2012;Kao et al, 2009;Mangala & Dhanda, 2019;Premti, 2013;leverage (Eckbo & Norli, 2005; S. Gao et al, 2017;Gill et al, 2014;Kao et al, 2009;firm age (Ahmad-Zaluki et al, 2011;Myers et al, 2003;Shust, 2015); total accruals (Algharaballi, 2013;Becker et al, 1998;Elder & Zhou, 2002;Yas xar, 2013;Zhou & Elder, 2004; firm performance-Return on asset, operating cash flow, and change of net income (Alsultan, 2017;Chowdhury & Eliwa, 2021;D. A. Cohen & Zarowin, 2010;Dechow et al, 1995;J.…”

“…In addition, audit studies tend to signaling theory to explain the demand for high audit quality. According to Alsultan (2017) and Titman and Trueman (1986), when firms hire a high-quality auditor during an IPO, it can be observed as a positive signal as a signal regarding the economic value of the firm and a signal of the quality of their financial statements. Hence, the authors support the notion of signals as they present evidence that newly issuing firms send a positive signal of true firm value to potential investors by hiring a reputable auditor.…”