The effect of board independence on dividend payouts: A quasi-natural experiment

57 Pages Posted: 17 Nov 2022

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Sirimon Treepongkaruna

The University of Western Australia; Financial Research Network (FIRN)

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: November 3, 2022

Abstract

Motivated by agency theory, we investigate the effect of board independence on dividend policy. We exploit as a quasi-natural experiment the passage of the Sarbanes-Oxley Act and the associated exchange listing requirement, mandating firms to have a majority of independent directors. Our difference-in-difference estimates show that firms forced to raise board independence are significantly more likely to pay dividends than firms not required to change board independence. Our results are consistent with the notion that stronger board independence forces managers to disgorge more cash to shareholders, thereby reducing what is left for possible expropriation by opportunistic managers. Based on an exogenous regulatory shock, our results are more likely to show a casual effect, rather than merely an association.

Keywords: dividends, board independence, independent directors, corporate governance, payout policy

JEL Classification: G34, G35

Suggested Citation

Chintrakarn, Pandej and Treepongkaruna, Sirimon and Jiraporn, Pornsit and Lee, Sang Mook, The effect of board independence on dividend payouts: A quasi-natural experiment (November 3, 2022). Available at SSRN: https://ssrn.com/abstract=4267558 or http://dx.doi.org/10.2139/ssrn.4267558

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand

Sirimon Treepongkaruna

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
+61864887853 (Phone)
+61864881086 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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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