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.

Citation

Alsultan, A. and Hussainey, K. (2023), "The moderating effect of corporate liquidity on the relationship between financial reporting quality and dividend policy: evidence from Saudi Arabia", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-05-2023-0247