This study examines the relationship between accounting conservatism (AC) and financial constraints (FC) and their impact on dividend policy (DP). It was noted that the sample companies lack a clear explanation for their dividend policy despite achieving high profits. The study concluded that companies tend to use accounting conservatism as a result of financial constraints on their internal investments, which prevents them from benefiting from less costly external investments. This drives them to adopt policies that reduce dividend distribution to shareholders. Accounting conservatism and higher financial constraints lead to lower dividend distributions. Accounting conservatism measures show a greater negative impact on dividend policy compared to financial constraints measures. This means that a higher degree of conservatism leads to lower dividend distributions. However, financial constraints play a significant role in explaining the dependent variable when combined with accounting conservatism. This interpretation is consistent with Kim et al. (2023) and Abdel Tawab (2022). These results are important for regulators and standard setters regarding the importance of accounting conservatism and financial constraints within accounting standards, as accounting conservatism is widely used in practice by recording the benefits of accounting conservatism in reducing financial constraints, which better explains the companies’ dividend policy.
Hussein Zuhair Abdulameer Zainy (Wed,) studied this question.