Dividend is a substitute or an outcome of Auditor Monitoring? Another Evidence
This study investigates the association between auditors monitoring and dividend payout policy. The previous literature illustrate that there are two ways to mitigate the agency concern; One is through dividend payments while other way of mitigating agency concern is to improve auditors monitoring, which reduces the information asymmetry between insiders and outsiders due to which the managers are forced to pay the dividends. The first way of mitigating the agency concern is called substitution model while the second way is called outcome model. In order to assess which of the model of mitigating agency concern is prevailing in Pakistan, study used the data of 140 listed firms from 2005 to 2010 and observed that there is a positive and significant association between auditor monitoring and dividend payouts. These results are indication of presence of outcome model. Moreover, these results are consistent with prior studies.