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Auditee’s payout policies: does audit quality matter?

Auditee’s payout policies: does audit quality matter? This study aims to explore whether an auditee’s audit quality influences its payout policies (i.e. each form of dividend payouts and stock repurchase payouts).Design/methodology/approachBased on a panel data of US public firms, from 2004 to 2018, and Tobit estimators, this study aims to examine whether auditees’ audit quality is related to their payouts and under which circumstances (from the standpoints of auditees’ information asymmetry, refinancing risk, corporate governance and financial constraints) the aforesaid associations are more pronounced.FindingsThe findings of this study imply that auditees’ audit quality is positively related to auditees’ payouts. Further examination suggests that this positive relationship is stronger for auditees with higher information asymmetry, lower financial constraints and refinancing risk and for those with weaker governance. Finally, this study documents that dividend payouts are more stable for auditees with high-quality audits than those with low-quality audits. The results support the view that auditees’ transparency (reflected in high-quality audits) could be a crucial driver and rationale for their payout policies and, ultimately, overall policies.Originality/valueBy combining two different research lines of audit quality and corporate payout policies, this paper adds to both literature, as it is a novel one to document the contributing function and impact of audit quality on auditee’s payout policies (tangible financial decisions and policies). The findings are significant considering that it documents high-quality audits affecting the auditees besides their financial reporting quality. This study also shows the moderating roles of the auditee’s information asymmetry, rollover risk, financial constraints and corporate governance in the relation between audit quality and an auditee’s payout decisions. Furthermore, the findings can help shareholders (aiding them in determining companies with high payout policies), regulators and policymakers who emphasize audit quality. The results indicate that policymakers’ and standard setters’ efforts fostering high-quality audits should be in conjunction with firm payout standards. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Auditing Journal Emerald Publishing

Auditee’s payout policies: does audit quality matter?

Hendijani Zadeh, Mohammad
Managerial Auditing Journal , Volume 37 (5): 23 – Apr 21, 2022
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References (75)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0268-6902
eISSN
0268-6902
DOI
10.1108/maj-03-2021-3048
Publisher site
See Article on Publisher Site

Abstract

This study aims to explore whether an auditee’s audit quality influences its payout policies (i.e. each form of dividend payouts and stock repurchase payouts).Design/methodology/approachBased on a panel data of US public firms, from 2004 to 2018, and Tobit estimators, this study aims to examine whether auditees’ audit quality is related to their payouts and under which circumstances (from the standpoints of auditees’ information asymmetry, refinancing risk, corporate governance and financial constraints) the aforesaid associations are more pronounced.FindingsThe findings of this study imply that auditees’ audit quality is positively related to auditees’ payouts. Further examination suggests that this positive relationship is stronger for auditees with higher information asymmetry, lower financial constraints and refinancing risk and for those with weaker governance. Finally, this study documents that dividend payouts are more stable for auditees with high-quality audits than those with low-quality audits. The results support the view that auditees’ transparency (reflected in high-quality audits) could be a crucial driver and rationale for their payout policies and, ultimately, overall policies.Originality/valueBy combining two different research lines of audit quality and corporate payout policies, this paper adds to both literature, as it is a novel one to document the contributing function and impact of audit quality on auditee’s payout policies (tangible financial decisions and policies). The findings are significant considering that it documents high-quality audits affecting the auditees besides their financial reporting quality. This study also shows the moderating roles of the auditee’s information asymmetry, rollover risk, financial constraints and corporate governance in the relation between audit quality and an auditee’s payout decisions. Furthermore, the findings can help shareholders (aiding them in determining companies with high payout policies), regulators and policymakers who emphasize audit quality. The results indicate that policymakers’ and standard setters’ efforts fostering high-quality audits should be in conjunction with firm payout standards.

Journal

Managerial Auditing Journal – Emerald Publishing

Published: Apr 21, 2022

Keywords: Audit quality; Dividend payout; Stock repurchase payout; Information asymmetry

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