Financial Restatements and Dividend Policy: Compensation and Signaling Strategies in the Brazilian Capital Market

Results and contributions: Our results showed that companies that restated their financial statements seek to compensate their shareholders with higher dividends when compared to those that did not. In addition, in the following year, these dividends tend to be higher, reinforcing the hypothesis of using dividends as a signaling mechanism, reducing asymmetry, and compensating shareholders. These findings can contribute to researchers interested in the subject, managers, accountants, auditors, regulators, and other stakeholders interested in understanding the implications of the representations on the dividend policy of listed companies. Objective: This study aimed to verify whether the companies that restated the financial statements compensated their shareholders with higher dividends in the years following this event. Gap: Previous literature has suggested that companies with lower-quality financial information tend to pay lower dividends. However, an alternative explanation is that companies that disclose lower-quality financial information seek to signal greater solidity to the market by compensating shareholders with higher dividends. The present study aims to fill this gap by presenting evidence in the context of the Brazilian capital market. Relevance: The study is relevant because it demonstrates that companies with lower earnings tend to compensate their investors in subsequent periods with higher dividends. Impact: Unlike previous studies, it was observed that companies with lower earnings quality may use dividend policies as a strategy to please investors. The study contributes to the risk assessment of auditors, investors, governance committee members, auditing, and regulators. Methods: Data from 275 companies listed on the Brazil, Bolsa, and Balcão (B3) exchange from 2010 to 2020 were analyzed using descriptive statistics, tests of differences between means, and panel data regression analysis.