Financial Reporting Quality and Dividend Policy: New Evidence from an International Level

Abstract

This study examines the link between financial reporting quality and dividend payout across 123 countries. We find that financial reporting quality increases dividend payout after controlling for firm and country specifics. We also investigate different channels that mediate the relation between financial reporting quality and dividend payout. We find that the positive association between high-quality financial reporting and dividend payout is more pronounced when firms have free cash flow problems, face financial constraints, and are located in countries with greater minority shareholder protection rights. Conversely, firms benefit less from this positive relation when located in countries with higher accounting standards. The findings remain consistent after several robustness checks, thus highlighting the effectiveness of more transparent disclosure of financial information in reducing information asymmetry related to firms’ internal agency costs and their relationships with external parties.