Do accounting distortions measure earning quality? the reaction of dividend signalling
The study examines if dividends relate with accounting distortions the same way as they relate with abnormal accruals. Furthermore we study how abnormal accrual and accounting distortions can be used in earnings manipulation and how they measure earnings quality. We find that those two measures have very much in common but they respond very different to dividends. Further analysis from 4 European equity markets shows that accounting distortions are very related to growth variable. Taken together our evidence suggests that large accounting distortion provide small earning quality but they are very commonly used as earnings management by growth companies.