The Effects of Earnings Management on Dividend policy in Nigeria:An Empirical Note

Abstract

Earnings management is becoming an area of interest to many stakeholders including researchers, after the case of Enron, WorldCom, and other similar accounting scandals. Although, many authors had written on earnings management in Nigeria, this present study looked at the effect of earnings management on dividend policy in Nigeria using quoted non-financial institutions in Nigerian stock exchange. In this study, the dividend policy is used as the explained variable, while earnings management serves as the explanatory variable. Firm size, return on equity and financial leverage were used as control variables. Data were sourced from annual report and account of the year, 2012, from the selected firms. Ordinary least square was used to estimate the model built for the study. The results show that earnings management has negative relationship with dividend policy of a firm and it is not significant in the determination of dividend payout of every firm. It was therefore concluded that this relationship could be as a result of effective corporate governance mechanisms put in place. If managers increase discretionary accruals of company, dividend percentage will not increase, even not significant in the determination of dividend policy in Nigeria.