Impact of Real Earnings Management on Dividend policy: Evidence from Shariah Compliant Firms and Conventional Firms of Pakistan

Abstract

This research study has focused on investigating the impact of real earnings management on dividend policy in shariah compliant firms of Pakistan. In this study, real earnings management has been considered as independent variable, return on equity, size of the firm, and self-finance ratio, have been considered as control variables, and dividend policy has been considered as dependent variable. This study has aimed to investigate the relationship between variables mentioned above in conventional and Islamic shariah complaint firms of Pakistan, as sector chosen for this study has been shariah compliant firms of Pakistan. To find out the relationship, historical data regarding these variables have been collected from the period of 2012 – 2017 through secondary source of data (such as annual financial statements). Whereas, several statistical instruments (such as descriptive statistics, correlation, and regression) have been used for identifying the relationship between variables of this study. Strata software has been used to draw results via statistical instruments mentioned above. Based on the findings, it has been proved that real earnings management, return on equity, size of the firm, and self-finance ratio impacts dividend policy in conventional shariah compliant firms of Pakistan. Whereas, return on equity and self-finance ratio impacts dividend policy in Islamic shariah compliant firms of Pakistan. Conclusively, this study has found out that real earnings management, return on equity, size of the firm, and self-finance ratio has significant relationship with dividend policy in conventional shariah compliant firms of Pakistan. Whereas, return on equity and self-finance ratio has significant relationship with dividend policy in Islamic shariah compliant firms of Pakistan. On the other hand, return on equity and size of the firm has insignificant impact on dividend policy in Islamic shariah compliant firms of Pakistan