Reinterpretation of Foreign Investors’ Controlling Function in Earnings Management from a Dividend Perspective : Evidence from Korea

[Purpose] In Korean companies, the monitoring function of foreign investors plays an important role in governance. This study analyzes how foreign investors play a role in earnings management when Korean companies pay dividends. [Methodology] With 8,099 samples of KOSPI－registered companies from 2003 to 2019, variables such as discretionary accrual, dividend payout ratio, expected dividend payout, and dividend persistence are used for multiple regression. [Findings] The results are as follows. First, variables that interacted with foreign investors’ stakes, aggressive earnings management, and continuous dividends showed a positive relation to the dividend payout tendency. Second, variables that interacted with foreign investors’ shares, lack of expected dividends, and continuous dividends showed a positive relation to the dividend payout tendency. [Implications] This study presented the results of verifying the behavior of foreign investors and earnings management from the ‘dividend point of view’. This suggested a new perception that foreign investors can increase accounting transparency and exert pressure on dividends.