Abstract

http://ssrn.com/abstract=1786510
 


 



Does Corporate Board Diversity Affect Corporate Payout Policy?


Soku Byoun


Baylor University

Kiyoung Chang


University of South Florida Sarasota-Manatee - School of Business

Young Sang Kim


Northern Kentucky University - Haile/US Bank College of Business

February 2013


Abstract:     
This paper investigates whether board diversity has a significant impact on corporate payout decisions. Previous studies exclusively focus on examining the relation between a measure of firm performance and board diversity. The major advantage of our study is to investigate the direct impact of board diversity on a major corporate decision - i.e., dividend payout policy.

We find that firms with diverse boards are more likely to pay dividends and tend to pay larger dividends than those with non-diverse boards. After controlling for various firm characteristics and exploring alternative explanations for the positive association between board diversity and dividend payout policy, our results suggest that board diversity has a significant impact on dividend payout policy. The impact of board diversity on dividend payout policy is particularly conspicuous for firms with potentially greater agency problems of free cash flow, suggesting that diverse board helps mitigate the free cash flow problem. Our findings are consistent with the argument that board diversity enhances the monitoring function of directors for the benefit of shareholders.

We also show that significantly larger portion of firms pay dividends after they added a diverse director to their boards and that firms pay significantly higher dividends after adding a diverse director for the first time. However, the change in dividend payout ratio is not significant when firms add another diverse director to their already diverse boards. Also, the benefits of board diversity are not materialized when directors share the same gender or ethnic tie with the CEO. Our findings have an important implication for policies aiming to increase the number of diverse directors in corporate boardrooms. What makes the significant difference is not the sheer number of diverse directors in the board but the diversity they bring to the board.

Number of Pages in PDF File: 69

Keywords: Board Diversity, Payout Policy, Monitoring, Free Cash Flow

JEL Classification: G30, G34, G35

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Date posted: March 18, 2011 ; Last revised: September 10, 2013

Suggested Citation

Byoun, Soku and Chang, Kiyoung and Kim, Young Sang, Does Corporate Board Diversity Affect Corporate Payout Policy? (February 2013). Available at SSRN: http://ssrn.com/abstract=1786510 or http://dx.doi.org/10.2139/ssrn.1786510

Contact Information

Soku Byoun (Contact Author)
Baylor University ( email )
Department of Finance Insurance & Real Estate
P.O.Box 98004
Waco, TX 76712
254-710-7849 (Phone)
Kiyoung Chang
University of South Florida Sarasota-Manatee - School of Business ( email )
8350 N. Tamiami Trail, SMC-C263
Sarasota, FL 34243-2025
United States
9413594359 (Phone)
9413594367 (Fax)
Young Sang Kim
Northern Kentucky University - Haile/US Bank College of Business ( email )
Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)
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