Earnings management and the market performance of stock dividend issuing firms NZ evidence

Purpose - The purpose of this paper is to extend the literature on earnings management by examining whether stock dividends provide management with an incentive to manipulate earnings. Design/methodology/approach - This paper employs a refined accrual model that controls the performance effects in estimating the part of accruals subject to managerial discretion. Findings - Stock dividend issuing firms increase accruals substantially in the issue year followed by poor earnings and stock price performance in the subsequent year. More importantly, discretionary accruals of stock dividend issuing firms are negatively correlated with the declines in both future earnings and abnormal stock returns. Originality/value - This paper examines the hypothesis that stock dividend firms engage in earnings management.