Cash dividend and key audit matters (KAMs) disclosures: evidence from Australia

Md. Mustafizur Rahaman and Md. Rezaul Karim

Meditari Accountancy Research, 2025, vol. 33, issue 7, 593-631

Abstract: PurposeThis study investigates whether, and how, cash dividends impact the reporting of key audit matters (KAMs) in the context of a developed economy, Australia.Design/methodology/approachThe study analyzes 932 firm-year observations spanning 2017–2020 of ASX 300 listed companies by employing panel regression and interpreting the results following the information asymmetry lens of agency, signaling and communication theories. Additionally, the study conducts a series of robustness tests – alongside cross-sectional analyses, mechanism tests and addressing endogeneity concerns – to ensure the consistency and reliability of the findings.FindingsThis paper documents a significant, negative association between cash dividends and the number and extent of reported KAMs, which remains robust when considering alternative measures and endogeneity concerns. Cash dividends signal as a tangible indicator of financial strength, reducing information asymmetry and fostering trust, resulting in reduced KAM disclosures. Particularly in cash-rich, financially nondistressed, low-risk firms and pre-COVID-19 periods, the negative association between cash dividends and KAM disclosures is more pronounced due to lower information asymmetry in these firms/periods. We document two potential channels: analyst following and forecast accuracy, through which cash dividends may affect KAM disclosures.Practical implicationsThe findings have significant implications for companies, auditors, investors and regulators.Originality/valueThis research pioneers the link between cash dividends and KAMs, enriching both the accounting and finance literature with novel perspectives.

Keywords: Key audit matters (KAMs); Cash dividend; Developed economies; Signaling theory; Information asymmetry (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:medarp:medar-12-2024-2770

DOI: 10.1108/MEDAR-12-2024-2770

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