The Impact of Board Composition on the Dividend Policy of US Firms

Corporate Governance: The International Journal of Business in Society, Forthcoming

32 Pages Posted: 27 Feb 2021

See all articles by Ephraim Kwashie Thompson

Ephraim Kwashie Thompson

Seoul National University of Science and Technology

Sylvester Adasi Manu

Hong Kong Metropolitan University

Date Written: December 22, 2020

Abstract

Purpose: This paper examines whether the characteristics of boards are more important in determining dividend policy than management characteristics. We show that as the final declarers of dividend policy is a firm’s board, the composition of a firm’s board significantly subsumes the effect of management characteristics that may also influence dividend policy.

Design/methodology/approach: Using the dividend declaration dummy variable, we run a fixed effect logistic regression of the dividend indicator on board characteristics, and managerial characteristics with firm level controls, year effects and industry effects while clustering standard errors at the firm level. For dividend yield variable which is censored at zero, we employ a fixed effect Tobit regression.

Findings: The results of the study show that board characteristics such as average age, female presence, and size have a strong positive significant effect while board independent chair, and voting right of directors have a negative significant effect on the likelihood of dividend declaration. For dividend yields, the results suggest that the presence of directors with financial expertise and the board size are the main influencers of dividend policy. Managerial characteristics are subsumed by director characteristics for determining dividend policy. The results overall support the evidence on the monitoring role of boards on management.

Originality/value: The originality and value of this study lies in the approach of including a comprehensive number of board characteristics unlike previous studies which makes the study of the influence of board composition on dividends more encompassing.

Keywords: Dividend, Board composition, Management composition

JEL Classification: G34, G35

Suggested Citation

Thompson, Ephraim Kwashie and Adasi Manu, Sylvester, The Impact of Board Composition on the Dividend Policy of US Firms (December 22, 2020). Corporate Governance: The International Journal of Business in Society, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3754881

Ephraim Kwashie Thompson (Contact Author)

Seoul National University of Science and Technology ( email )

172 Gongreuing 2-dong, Nowon-gu
Seoul, 139-746
Korea, Republic of (South Korea)

Sylvester Adasi Manu

Hong Kong Metropolitan University ( email )

Hong Kong

HOME PAGE: http://https://www.hkmu.edu.hk/

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