Do Co-Opted Directors Influence Dividend Policy?

41 Pages Posted: 22 Sep 2017

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Sang Mook Lee

Pennsylvania State University - Great Valley School of Graduate Professional Studies

Date Written: September 21, 2017

Abstract

We explore how co-opted directors affect dividend policy. Co-opted directors are those appointed after the incumbent CEO assumes office. Our results show that co-opted directors lead to a weaker propensity to pay dividends and, for dividend-paying firms, significantly lower dividend payouts. We also show that board co-option has more explanatory power for dividend policy than does the traditional measure of board effectiveness, that is, board independence. Exploiting the passage of the Sarbanes-Oxley Act as a natural experiment, we show that the effect of board co-option on dividend policy is more likely causal, rather than merely an association.

Keywords: dividends, dividend policy, co-opted boards, agency theory, corporate governance

JEL Classification: G34, G45

Suggested Citation

Jiraporn, Pornsit and Lee, Sang Mook, Do Co-Opted Directors Influence Dividend Policy? (September 21, 2017). Available at SSRN: https://ssrn.com/abstract=3040983 or http://dx.doi.org/10.2139/ssrn.3040983

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Sang Mook Lee

Pennsylvania State University - Great Valley School of Graduate Professional Studies ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
610-725-5391 (Phone)

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