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Dividend payment and financial restatement: US evidence

Dividend payment and financial restatement: US evidence The purpose of this paper is to investigate the impact of financial restatement on corporate dividend payment. Firms that announce financial restatements rupture their corporate reputation and adversely affect investors’ confidence. Consequently, firms must attempt to regain lost reputation and market confidence.Design/methodology/approachThis study uses the US regulatory setting to examine the association between corporate dividend policy and financial restatement over the 2001–2017 financial years.FindingsThe findings evidence a robust positive association between financial restatement and dividend payouts, indicating that firms pay higher dividends following the year of financial restatement. Several sensitivity tests were conducted to confirm the robustness of the findings.Originality/valuePrior research indicates that corporate dividend payouts enhance a firm’s reputation by reducing information asymmetry and providing a positive signal to investors regarding future financial performance. This study provides valuable evidence that dividend payout can be used as a channel for image restoration by firms with lost reputations because of financial restatement. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting and Information Management Emerald Publishing

Dividend payment and financial restatement: US evidence

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1834-7649
eISSN
1834-7649
DOI
10.1108/ijaim-07-2021-0154
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to investigate the impact of financial restatement on corporate dividend payment. Firms that announce financial restatements rupture their corporate reputation and adversely affect investors’ confidence. Consequently, firms must attempt to regain lost reputation and market confidence.Design/methodology/approachThis study uses the US regulatory setting to examine the association between corporate dividend policy and financial restatement over the 2001–2017 financial years.FindingsThe findings evidence a robust positive association between financial restatement and dividend payouts, indicating that firms pay higher dividends following the year of financial restatement. Several sensitivity tests were conducted to confirm the robustness of the findings.Originality/valuePrior research indicates that corporate dividend payouts enhance a firm’s reputation by reducing information asymmetry and providing a positive signal to investors regarding future financial performance. This study provides valuable evidence that dividend payout can be used as a channel for image restoration by firms with lost reputations because of financial restatement.

Journal

International Journal of Accounting and Information Management – Emerald Publishing

Published: Jun 14, 2022

Keywords: Financial restatement; Dividend payment; Signalling mechanism

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