Dividend payment and earnings quality: evidence from Indonesia

Purpose - This research aims to examine the relationship between dividend payment and earnings quality. Design/methodology/approach - The authors examine four dividend features: dividend-paying status, dividend size, dividend changes, and dividend persistence. The samples consist of 90 firms from the manufacturing industry in the years 2005-2009. Multiple regression is used for testing hypotheses. Findings - The results show that dividend-paying status, dividend increase, and persistence in dividend payment have significant positive association with earnings quality. However, the authors do not find evidence that larger dividend size is an indicator of higher earnings quality. Overall, the results show that dividend-paying status, increase in dividend size, and persistence in dividend payment are indicators or signals of higher earnings quality. Research limitations/implications - This study examines only the manufacturing firms listed on the Indonesia Stock Exchange. Further study based on different industries and/or different emerging markets is needed before generalizing results. Originality/value - Few studies have examined dividend payment in emerging markets. This study fills the void.