This study is an attempt to investigate the association between dividends and earnings quality of firms listed on the S&P BSE 200 in India. Most of the extant literature on the association between dividends and earnings quality (Hanlon, Myers & Shevlin, 2007; Skinner & Soltes, 2011) is based on the developed markets but, as rightly suggested by Adaoglu (2000), there exists considerable difference in the dividend policy behaviour of developed markets and emerging markets, possibly due to differences in institutional settings and efficiency levels. India is different from other countries in several dimensions such as the economy, firm ownership structure, tax regime and regulatory framework. The association of dividends with earnings quality is because of the information that dividends implicitly convey to the market about the earnings quality. Four features of dividends have been examined in the study -- dividend paying status, size of dividends, changes in dividends and dividend persistence. The sample consists of 107 companies listed on S&P BSE200 and a period of 12 years, that is 2004 to 2015, is considered for analysis, for which multiple regression analysis is used. It is evident that dividends convey information about a firm’s earning quality. Payment of dividends, changes in dividends and dividend persistence communicate information about the quality of earnings, but size of dividend does not have a significant association with earnings quality. This study contributes to the growing literature in the area of accounting, on determining the relationship between the various features of dividends and earnings quality. The findings of the study would be of interest to policymakers, academicians and investors. Investors would benefit from the study as they have an interest in assessing earnings quality which is difficult due to information asymmetry between the investors and the insiders of the firm.
