The moderating effect of corporate liquidity on the relationship between financial reporting quality and dividend policy: evidence from Saudi Arabia

Purpose – We examine the impact of financial reporting quality (FRQ) on dividend policy. We also examine the moderating role of corporate liquidity on the FRQ-dividend policy relationship.

Design/methodology/approach – Our sample contains 113 non-financial companies listed on the Saudi Stock Exchange from 2003 to 2019 (1675 firm-year observations). We use OLS regressions to test our hypotheses.

Findings – We find a positive relationship between FRQ and dividend policy. We also find that the positive effect of FRQ on dividend policy is not strengthened by the presence of corporate liquidity.

Research implications – Our findings offer implications for stakeholders, including investors and others in Saudi Arabia and other developing countries with comparable business environments. This is due to the significant impact of the dividend policy on a company’s value, as it is a crucial decision that involves distributing substantial amounts of money to shareholders on a regular basis and interacts with other critical decisions within the company. Therefore, the dividend policy has a crucial role in determining the company’s value, which is reflected in its stock prices.

Originality/value – To the best of our knowledge, this is the first study in Saudi Arabia that provides new empirical evidence on the impact of FRQ on dividend policy and the moderating role of corporate liquidity on this relationship.