The mediating effect of dividend payment linking corporate governance and earnings quality: Empirical evidence from Thai listed companies

Abstract

This research studied the mediating effects of dividend payment linking corporate governance and earnings quality. Specifically, this study has the following four main objectives as follows: (1) to investigate the effects of corporate governance on earnings quality, (2) to explore the effects of corporate governance on dividend payment, (3) to determine the effect of dividend payment on earnings quality, and (4) to examine the effects of corporate governance on earnings quality through dividend payment. Corporate governance was measured by board structure including board size, CEO duality, and audit committee meeting; ownership structure; and executive compensation whereas earnings quality was quantified by Sloan (1996). The samples consisted of listed companies on the Stock Exchange of Thailand (SET) in the year 2015. All samples were from industrial groups except companies in financial industry, companies under rehabilitation, and companies with incomplete financial data. The secondary data obtained from 267 companies were analyzed by Structural Equation Modeling (SEM) to investigate the relationships within the full model using a three-stage analysis process with the statistical significant level of 0.05. The findings revealed that the board size, frequency of audit committee meeting, institutional ownership, executive compensation, and dividend payment had affected positively on earnings quality. Institutional ownership had a moderate negative effect on dividend payment while executive compensation had a highly positive effect on dividend payment. The study also found that the relationship between institutional ownership and earnings quality was partial mediate by dividend payment. The implication of these findings is that corporate governance does influence earnings quality, suggesting that firms with good corporate governance might have good earnings quality.