Dividend payment and earnings quality: evidence from Indonesia

Abstract

Purpose

This research aims to examine the relationship between dividend payment and earnings quality.

Design/methodology/approach

The authors examine four dividend features: dividend-paying status, dividend size, dividend changes, and dividend persistence. The samples consist of 90 firms from the manufacturing industry in the years 2005-2009. Multiple regression is used for testing hypotheses.

Findings

The results show that dividend-paying status, dividend increase, and persistence in dividend payment have significant positive association with earnings quality. However, the authors do not find evidence that larger dividend size is an indicator of higher earnings quality. Overall, the results show that dividend-paying status, increase in dividend size, and persistence in dividend payment are indicators or signals of higher earnings quality.

Research limitations/implications

This study examines only the manufacturing firms listed on the Indonesia Stock Exchange. Further study based on different industries and/or different emerging markets is needed before generalizing results.

Originality/value

Few studies have examined dividend payment in emerging markets. This study fills the void.

Citation

Sirait, F. and Veronica Siregar, S. (2014), "Dividend payment and earnings quality: evidence from Indonesia", International Journal of Accounting & Information Management, Vol. 22 No. 2, pp. 103-117. https://doi.org/10.1108/IJAIM-04-2013-0034