Examining the Moderating Role of the Quality of Financial Audits and Sustainability Assurance on the Relationship between Environmental, Social, and Governance Factors and the Payment and Growth of Company Dividends: Evidence from Iran
محورهای موضوعی : • Using of new tools in accounting and auditing educationAnahita Zandi 1 , Fereydoon Rahnama Roodposhti 2
1 - PhD in Accounting, Lecturer of Accounting Department, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran
2 - Professor, Department of Accounting, Science and Research Branch, Islamic Azad University,Tehran,Iran
کلید واژه: Audit quality, Dividend payment, Dividend growth, Environmental, social, Governance factors.,
چکیده مقاله :
Objectives: This research examines the relationship between environmental, social, and governance scores and dividend distribution decisions of companies, taking into account the moderating role of financial audit quality to ensure sustainability.
Design/methodology/approach: This research is applied, with a causal correlation methodology.
Despite limitations, a sample of 152 firms was selected for the years 2018-2022. Multivariate linear regression based on panel data was used to test the research hypotheses.
Results: Panel regression analyses reveal a positive and significant correlation between ESG scores and dividend payouts. This suggests that companies with strong environmental, social, and governance practices prioritize stakeholders and shareholders, maintaining dividend payments. However, companies that prioritize high-quality ESG practices experience slower dividend growth. Additionally, audit quality negatively moderates the relationship between ESG scores and dividend payouts, particularly for companies audited by A-rated firms. Quality assurance of ESG factors did not yield statistically significant results.
Innovation: The findings have implications for investors, management, analysts, and policymakers, offering valuable insights for companies looking to enhance their sustainability practices.
1- Adjaoud, F., & Ben-Amar, W. (2010). Corporate governance and dividend policy: Shareholders' protection or expropriation? Journal of Business Finance & Accounting, 37(5–6), 648–667.
2- Agyei-Mensah, B. K. (2019). The effect of audit committee effectiveness and audit quality on corporate voluntary disclosure quality. African Journal of Economic and Management Studies, 10(1), 17-31.
3-Ali, C. B., & Lesage, C. (2013). Audit pricing and nature of controlling shareholders: Evidence from France. China Journal of Accountability Research, 6, 21–34.
4- Asante-Appiah, B., & Lambert, T. A. (2022). The role of the external auditor in managing environmental, social, and governance (ESG) reputation risk. Review of Accounting Studies, forthcoming.
5-Bacha, S., Ajina, A., & Ben Saad, S. (2020). CSR performance and the cost of debt: Does audit quality matter? Corporate Governance, 21(1), 137–158.
6-Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. R. (1998). The effect of audit quality on earnings management. Contemporary Ac- counting Research, 15(1), 1–24.
7-Benlemlih, M. (2019). Corporate social responsibility and dividend policy. Research in International Business and Finance, 47, 114–138.
8-Birkey, R. N., Michelon, G., Patten, D. M., & Sankara, J. (2016). Does assurance on CSR reporting enhance environmental reputation? An ex- amination in the US context. Accountability Forum, 40(3), 143–152.
9-Booth, L., & Zhou, J. (2017). Dividend policy: A selective review of results from around the world. Global Finance Journal, 34, 1–15.
10- Cao, J., Kubick, T. R., & Masli, A. N. S. (2017). Do corporate payouts signal going-concern risk for auditors? Evidence from audit reports for companies in financial distress. Review of Quantitative Finance and Accounting, 49(3), 599–631.
11- Choi, J. H., Kim, C., Kim, J. B., & Zang, Y. (2010). Audit office size, audit quality, and audit pricing. Auditing: A Journal of practice & theory, 29(1), 73–97.
12-Cheung, A., Hu, M., & Schwiebert, J. (2018). Corporate social responsibility and dividend policy. Accounting and Finance, 58, 787–816.
13-Cuadrado-Ballesteros, B., Garcia-Sanchez, I. M., & Ferrero, J. M. (2016). How are corporate disclosures related to the cost of capital? The fundamental role of information asymmetry. Management Decision, 54(7), 1669-1701.
14-DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics, 81(2), 227–254.
15-DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326.
16-Del Giudice, A., & Rigamonti, S. (2020). Does audit improve the quality of ESG scores? Evidence from corporate misconduct. Sustainability, 12(14), 5670.
17-Deshmukh, A., Karim, K. E., & Siegel, P. H. (2003). An analysis of efficiency and effectiveness of auditing to detect management fraud: A signal detec- tion theory approach. International Journal of Auditing, 2(2), 127–138.
18-Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary non- financial disclosure and the cost of equity capital: The initiation of corpo- rate social responsibility reporting. The Accounting Review, 86, 59–100.
19-Duque-Grisales, E., & Aguilera-Caracuel, J. (2021). Environmental, social and governance (ESG) scores and financial performance of multilatinas: Moderating effects of geographic international diversification and financial slack. Journal of Business Ethics, 168, 315–334.
20-El Ghoul, S., Guedhami, O., Kwok, C. C., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35, 2388–2406.
21-Elmagrhi, M. H., Ntim, C. G., Crossley, R. M., Malagila, J. K., Fosu, S., & Vu, T. V. (2017). Corporate governance and dividend pay-out policy in UK listed SMEs: The effects of corporate board characteristics. International Journal of Accounting and Information Management, 25(4), 459–483.
22-Erdas¸, M. L., & Simoes, E. B. (2020). The relationship between audit mech- anisms and dividend payout policy within the framework of corporate governance: The case of Turkey. Journal of Economy Culture and Society, 62, 255–284.
23-Farooque, O. A., Hamid, A., & Sun, L. (2021). Does corporate governance have a say on dividends in Australian listed companies? Australasian Ac- counting, Business and Finance Journal, 15(4), 47–75.
24-Francis, J. R., & Yu, M. D. (2009). Big 4 office size and audit quality. The accounting review, 84(5), 1521–1552.
25-Francis, J. R. (2011). A framework for understanding and researching audit quality. Auditing: A journal of practice & theory, 30(2), 125–152.
26-Griffin, P. A., Lont, D. H., & Sun, Y. (2010). Agency problems and audit fees: Further tests of the free cash flow hypothesis. Accounting and Finance, 50,321–350.
27-Guizani, M. (2018). The mediating effect of dividend payout on the relation- ship between internal governance and free cash flow. Corporate Gover- nance, 18(4), 748–770.
28-Hammami, A., & Zadeh, M. H. (2020). Audit quality, media coverage, envi- ronmental, social, and governance disclosure and firm investment effi- ciency: Evidence from Canada. International Journal of Accounting and Information Management, 28(1), 45–72.
29-Huguet, D., & Gandía, J. L. (2016). Audit and earnings management in Spanish SMEs. BRQ Business Research Quarterly, 19(3), 171–187.
30-Jan Abadi, Mehla, Jami, Majid. (2020). Corporate Governance and Dividend Payment Policy in Companies Listed in Tehran Stock Exchange (Effects of Board of Directors Characteristics of Companies). Shabak Scientific and Research Journal, 6(6 (consecutive 57)), 13-20
31-Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305–360.
32-Knechel, W. R., Krishnan, G. V., Pevzner, M., Shefchik, L. B., & Velury, U. K. (2013). Audit quality: Insights from the academic literature. A Journal of Practice & Theory, 32(Supplement 1), 385–421.
33-Lee, H. L., & Lee, H. (2013). Do big four audit firms improve the value relevance of earnings and equity? Managerial Auditing Journal, 28(7), 628–646.
34-Martínez‐Ferrero, J., & García‐Sánchez, I. M. (2017). Sustainability assurance and cost of capital: Does assurance impact on credibility of corporate social responsibility information?. Business Ethics: A European Review, 26(3), 223-239.
35-Mitton, T. (2004). Corporate governance and dividend policy in emerging markets. Emerging Markets Review, 5(4), 409–426.
36-Niccolò, N., Battisti, E., Papa, A., & Miglietta, N. (2020, November). Shareholder value and dividend policy: the role of ESG strategies. In 2020 IEEE International Conference on Technology Management, Operations and Decisions (ICTMOD) (pp. 1-5). IEEE.
37-Ni, X., & Zhang, H. (2019). Mandatory corporate social responsibility disclosure and dividend payouts: Evidence from a quasi-natural experiment. Accounting and Finance, 58(5), 1581–1612.
38-Pan, L. (2020). Demystifying ESG investing considerations for institutional cash investors. Journal of Portfolio Management, 46, 153–156.
39-Rakotomavo, M. T. (2012). Corporate investment in social responsibility versus dividends? Social Responsibility Journal, 8, 199–207.
40-Salah, O. B., & Amar, A. B. (2022). Does corporate social responsibility affect dividend policy? Empirical evidence in the French context. Journal of Global Responsibility, 13(3), 268–289.
41-Samet, M., & Jarboui, A. (2017). Corporate social responsibility and payout decisions. Managerial Finance, 43(9), 982-998.
42-Seighali, Mohsen, Amirpanahi, Mohammad Masoud. (2020). Examining the relationship between corporate social responsibility disclosure, company life cycle and dividend policy. The 6th National Conference of Modern Researches in the Field of Human Sciences, Economics and Accounting of Iran, Tehran
43-Shokrzadeh, Fahime. (2022). The impact of the company's environmental, social and governance performance on the company's financial constraints during the 19-Covid-19 pandemic. The first national conference on modernization in management, accounting and economics research, Mashhad
44-Starks, L. T., Venkat, P., & Zhu, Q. (2017). Corporate ESG profiles and investor horizons. Available at SSRN 3049943.
45-Tahriri, A., & Afsay, A. (2021). The Impact of Environmental, Social and Governance Disclosure on Auditor Effort and Audit Quality. Journal of Accounting Knowledge, 12(3), 69-88. doi: 22103/10/jak.16637/3349/2021
46-Vander Bauwhede, H., & Van Cauwenberge, P. (2022). Determinants and value relevance of voluntary assurance of sustainability reports in a mandatory reporting context: Evidence from Europe. Sustainability, 14(15), 9795.
47-Verga Matos, P., Barros, V., & Miranda Sarmento, J. (2020). Does ESG affect the stability of dividend policies in Europe? Sustainability, 12(21), 8804.
48-Yarram, S. R. (2015). Corporate governance ratings and the dividend payout decisions of Australian corporate firms. International Journal of Manage- rial Finance, 11(2), 162–178.
49-Yilmaz, M. K., Aksoy, M., & Khan, A. (2022). Moderating role of corporate governance and ownership structure on the relationship of corporate sustainability performance and dividend policy. Journal of Sustainable Finance & Investment, 1-30.
50-Zahid, R. A., & Simga‐Mugan, C. (2022). The impact of International Financial Reporting Standards adoption on the integration of capital markets. International Journal of Finance & Economics.
51-Zahid, R. A., Khan, M. K., Anwar, W., & Maqsood, U. S. (2022a). The role of audit quality in the ESG-corporate financial performance nexus: Empirical evidence from Western European companies. Borsa Istanbul Review, 22, S200-S212.
52-Zahid, R. M. A., & Simga-Mugan, C. (2019). An analysis of IFRS and SME- IFRS adoption determinants: A worldwide study. Emerging Markets Finance and Trade, 55(2), 391–408.
