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Dividend Policy and Informativeness of Reported Earnings: Evidence from the MENA Region
Author(s) -
Farooq Omar,
Shehata Nermeen,
Nathan Siva
Publication year - 2018
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12124
Subject(s) - credibility , earnings , dividend , dividend policy , agency (philosophy) , dividend payout ratio , monetary economics , principal–agent problem , business , agency cost , economics , accounting , shareholder , corporate governance , finance , political science , philosophy , epistemology , law
This paper documents that informativeness of reported earnings, measured by earnings–return relation, is an increasing function of dividend payout ratio in the Middle East and North Africa region during the period between 2003 and 2014. We argue that higher dividends reduce agency conflicts. Lower agency problems lead firms to disclose information more truthfully, thereby improving credibility of reported earnings. We also show that our results hold for various proxies of dividend policy.