Abstract：Taking into account the particularity of China’s capital market, this study examines whether managers manipulate earnings upward to avoid cash dividend declines when they anticipate that cash dividend will fall short of the prior year’s cash dividend. This study finds that managers use earnings management to avoid dividend declines when pre-managed earnings fall short of the prior year’s cash dividend. Earnings management aiming to close that difference can reduce the probability of a dividend cut. This study further examines the information content of cash dividend increases based on manipulated and unmanipulated earnings, and finds that dividend increases based on unmanipulated earnings contain information about future unexpected earnings, while dividend increases based on manipulated earnings contain no information about future unexpected earnings and continuous dividend increases based on manipulated earnings will damage the firm’s future development.
