ANALYSIS OF THE RELATIONSHIP BETWEEN DISCLOSURE QUALITY AND DIVIDEND PAYOUTS FROM THE AGENCY THEORY PERSPECTIVE

This study examines the effect of disclosure quality on dividend policy when the level of agency problem is taken into account and empirically tests the outcome and substitution hypotheses. We find evidence consistent with the outcome hypothesis; that is, disclosure quality is positively related to dividend payouts. In addition, high agency cost firms with better disclosure quality are associated with a stronger propensity to pay dividends and larger payouts. The results highlight the important governance role of disclosure quality. This study shows that despite the high agency cost problem, so long as there is high disclosure quality, shareholders can safeguard their interests by demanding higher dividends payouts.