6. Conclusion
This paper examines whether dividend payouts are associated with higher earnings quality. The research is conducted with data of Chinese listed firms, which face different institutional settings from those in the US. We first document that firms paying dividends have higher earnings quality, measured by earnings persistence, accrual quality, and earnings informativeness.
We provide further evidence on the association between dividend payouts and earnings quality by introducing factors that can affect firms’ incentives to pay dividends. We analyze the impact of the factor of equity refinancing, whereby China’s authorities require firms to pay continuous dividends to obtain the qualification of equity refinancing. Our empirical results show that the dividends of firms conducting equity refinancing lose power to convey information on earnings quality. We further investigate whether the relation between dividend payouts and earnings quality could change with different ultimate ownership. The empirical results show that the ownership has power to affect such an association. Firms with state ownership might use dividends to transfer resources out of the firms, so dividends of these firms have less information content to predict current earnings.
