Corporate governance and financial policies

2015 ◽  
Vol 41 (3) ◽  
pp. 267-285 ◽  
Author(s):  
Subba Reddy Yarram ◽  
Brian Dollery
Keyword(s):  
Corporate Governance ◽  
Life Cycle ◽  
Dividend Policy ◽  
Agency Cost ◽  
Positive Influence ◽  
Independent Directors ◽  
Board Independence ◽  
Dividend Payout ◽  
Content Type ◽  
Significant Positive Influence

Purpose – The purpose of this paper is to examine the influence of board structure on dividend policy of Australian corporate firms. It also considers the traditional explanations of corporate dividend choice, such as agency cost theory, signalling hypothesis, the life cycle hypothesis along with tax-based explanations of dividend policy. Design/methodology/approach – The final sample consists of 413 non-financial firms that are part of the All Ordinaries Index. The causal analysis was undertaken in three stages. In the first stage, the authors analyse the likelihood of paying dividends. And classify all firms as either dividend payers or non-payers. The authors then model this binary variable as a function of different sets of variables. In the second stage, the authors analyse the factors determining the magnitude of dividend payout by those firms that have paid a dividend. In contrast, stage three employs all firms – those which did not pay any dividend and those firms which paid a dividend. Findings – For the study period 2004-2009, this study finds that board independence has a significant positive influence on the dividend payout of Australian firms. This finding is consistent with the “outcome” model of La Porta et al. (2000). This study also finds that size has a significant positive influence on the dividend payout of Australian firms thus providing support for the agency cost view of dividend policy. Similarly, this study also finds support for the signalling hypothesis and the life cycle theory given the significant positive influence of profitability and the significant negative influence of current losses and growth opportunities on the dividend policy of Australian firms. Research limitations/implications – The findings of the study are robust with to alternative measures of variables employed and are not influenced by the global financial crisis. However, this study did not consider the possible endogenous and multiple relationships between dividends, debt, profitability, cash holdings and governance structures given the limited study period considered. Practical implications – This study finds that board independence has a significant positive influence on the dividend behaviour of Australian firms. This suggests that dividends and independent directors play complementary governance roles. While dividends provide the monitoring and disciplinary roles, independent directors act as catalysts for enhancing effective board functioning. These findings have implications for corporate governance policies and the payout policies. Originality/value – Though the governance role of dividends has long been recognized in the literature (Easterbrook, 1984; Jensen, 1986), very few studies analyse the influence of board characteristics on the decision to pay dividends in Australia. Given the distinct Australian setting where the tax imputation system allows companies to pay franked dividends to domestic investors, this study provides evidence on the interaction of corporate and dividend policies. This study finds that dividend polices are influenced by percentage franking of dividends. This study also finds that board independence has a significant positive influence on the dividend policy of Australian firms.

Corporate governance and payout policy: evidence from India

2019 ◽  
Vol 19 (5) ◽  
pp. 1117-1132 ◽  
Author(s):  
Monika Rajput ◽  
Shital Jhunjhunwala
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Dividend Policy ◽  
Stock Exchange ◽  
Positive Influence ◽  
Family Ownership ◽  
Board Independence ◽  
Dividend Payout ◽  
Content Type ◽  
Significant Positive Influence

Purpose The purpose of this paper is to study the impact of ownership structure and corporate governance on dividend policy in emerging markets, like India. The study also analyses the moderation effects of board independence between ownership and dividend payout. Design/methodology/approach The data set of 1,546 Indian firms over the period of 2006-2017 has been used in this study. Tobit and logistic regression methods has been used. The data used in this study are collected from the Centre for Monitoring Indian Economy (CMIE) Prowess database. The sample firms are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Findings First, the study finds a significant positive influence of corporate governance on the decision to pay dividend and is an important determinant of the payout decision. Second, the study finds a significant negative relationship of family ownership with dividend payout decisions which indicates that family firms pay lower dividend. Finally, the result from the interaction effect of board independence with family ownership has significant positive influence on dividend policy. Originality/value This is one of the first attempt to show that there is an interaction between independent board and ownership structure. It shows that more independent and non-executive directors in the board of family controlled firms are likely to pay more dividends.

Corporate governance ratings and the dividend payout decisions of Australian corporate firms

2015 ◽  
Vol 11 (2) ◽  
pp. 162-178 ◽  
Author(s):  
Subba Reddy Yarram
Keyword(s):  
Corporate Governance ◽  
Random Effects ◽  
Negative Impact ◽  
Unobserved Heterogeneity ◽  
Agency Cost ◽  
Positive Influence ◽  
Governance Mechanisms ◽  
Dividend Payout ◽  
Content Type ◽  
Significant Positive Influence

Purpose – The purpose of this paper is to examine the influence of corporate governance on the dividend payout decisions of Australian firms by considering two related objectives. First, it considers the role of corporate governance ratings (CGRs) on the decision to pay or not to pay dividends. Second, it considers the influence of CGRs on the average dividend payout level of Australian firms. Design/methodology/approach – The sample consists of 413 non-financial firms included in the All Ordinaries Index for the period 2004-2009. A logit model is employed to analyse the decision to pay or omit dividends. Similarly, tobit method is employed to analyse the factors influencing the dividend payout level of Australian firms. To control for unobserved heterogeneity, this study employs random effects panel logit and panel tobit models. Findings – This study finds that CGRs have a significant positive influence on the decision to pay dividends and on the average dividend payout level of Australian firms. Similarly, the present study finds support for signalling hypothesis as profitability has a significant positive influence and a loss dummy has a significant negative influence on the dividend payout decisions of Australian firms. The study also finds support for the life cycle hypothesis as growth opportunities have a significant negative impact on the average dividend payout level of Australian firms. This study finds no conclusive evidence of the existence of dividend tax clientele in Australia. Research limitations/implications – Dividends provide a complementary governance role consistent with the “outcomes model” of the agency cost theory as proposed by La Port et al. (2000). Practical implications – The findings have implications for corporate governance policies. Principle-based governance mechanisms work as well as the rule-based governance mechanisms in an environment characterized by high levels of investor protection and well-developed stock markets. Companies that are well governed may limit the opportunities for managers to expropriate shareholders and thus governance may reduce the contracting costs associated with compensation policies. Originality/value – This is the first study that examines the influence of governance on dividend policy using the CGRs developed by the WHK Horwath/University of Newcastle. Findings are robust and account for unobserved heterogeneity as random effects panel models are employed.

Corporate governance and dividends payout: are they substitutes or complementary?

2015 ◽  
Vol 9 (2) ◽  
pp. 177-194 ◽  
Author(s):  
Samuel Jebaraj Benjamin ◽  
Mazlina Mat Zain
Keyword(s):  
Corporate Governance ◽  
Agency Costs ◽  
Negative Relationship ◽  
Board Independence ◽  
Board Meeting ◽  
Dividend Payout ◽  
Content Type ◽  
Significant Negative Relationship ◽  
The Relationship ◽  
Unique Relationship

Purpose – This paper aims to furnish incremental insights on dividends and corporate governance (CG) by addressing the relationship between board meeting frequency and board independence with dividend payout. In particular, this study aims to investigate whether CG attributes are substitutes to control agency problem within the Malaysian context. Design/methodology/approach – This paper examines panel data on a sample of 114 Malaysian firms (798 observations) for seven years from 2002 to 2008. Findings – Based on 798 firm-year observations for the period from 2002 to 2008, the results show significant negative relationship between CG (board independence, board meeting frequency) and dividend payout. This suggests that CG and dividend payout are substitutes in reducing agency costs. Our study provides empirical evidence consistent with the “substitution argument”, indicating that firms with weak CG need to establish reputation by paying more dividends. Specifically, the findings indicate that firms with a higher proportion of independent directors and boards of director that meet more frequent pay lower dividends. Originality/value – This paper provides evidence on previously untested governance characteristics in relation to how they act as substitute mechanisms with dividends for reducing agency costs. The results builds a strong case for the fresh strand of knowledge on dividends and CG which tests each CG variables to understand each of its unique relationship with dividends in line with the dividends outcome or substitute theory.

Corporate governance and dividend policy in Sri Lankan firms: a data triangulation approach

2020 ◽  
Vol 12 (4) ◽  
pp. 543-560
Author(s):  
H. Kent Baker ◽  
Narayanage Jayantha Dewasiri ◽  
Sandaram P. Premaratne ◽  
Weerakoon Yatiwelle Koralalage
Keyword(s):  
Corporate Governance ◽  
Dividend Policy ◽  
Stock Exchange ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Sri Lankan ◽  
Survey Analysis ◽  
Data Set ◽  
Market Data ◽  
Content Type

Purpose This paper aims to investigate the relation between corporate governance and dividend policy in Sri Lankan firms. Design/methodology/approach The data set consists of market data using 1,608 firm-year observations from 201 firms listed on the Colombo Stock Exchange and survey-based data from 151 respondents from the same 201 firms. The authors use data triangulation to examine the two approaches. Findings The analysis of the market data reveals that a significantly positive relation between corporate governance on both the propensity to pay dividends and dividend payout. Survey analysis confirms these findings. Triangulated evidence supports the outcome model of dividends, free cash flow and agency cost theories. Practical implications The findings are useful not only for management in developing suitable corporate governance practices and dividend policies for their firms but also for shareholders in evaluating both existing and new investments. Future researchers should investigate the same phenomenon in other contexts using triangulation approaches to confirm their findings. Originality/value This study is the first to use governance indices both in terms of survey and market-based data to examine the relation between corporate governance and dividend policy.

Family directors, independent directors, remuneration committee and executive remuneration in Malaysian listed family firms

2019 ◽  
Vol 28 (1) ◽  
pp. 24-47
Author(s):  
Ling Jong ◽  
Poh-Ling Ho
Keyword(s):  
Family Relationships ◽  
Family Firms ◽  
Positive Influence ◽  
Independent Directors ◽  
Type Ii ◽  
Minority Shareholders ◽  
Content Type ◽  
Agency Conflict ◽  
Executive Remuneration ◽  
Significant Positive Influence

Purpose The purpose of this paper is to examine the influence of family directors and independent directors on executive remuneration of listed family firms in Malaysia, and their involvement in remuneration committee on executive remuneration. Design/methodology/approach Fixed effect estimation is employed to examine 1,395 firm-year observations from 2010 to 2014. Findings Family and independent directors do not have statistically significant influence on executive remuneration. Rather, family ownership exerts a significant positive influence on executive remuneration. This study also reveals that the interaction of family CEOs with the family directors on remuneration committee exerts a significant positive influence on executive remuneration. Research limitations/implications The measurement of executive remuneration excludes the share options due to the non-disclosure of this information in the annual reports. Practical implications The findings would be useful to the policy-makers and regulators in appraising the governance measures of remuneration arrangement. Originality/value This study premises on the Type II agency conflict between controlling shareholders and minority shareholders. Independent directors could not mitigate the Type II agency conflict via the governance of executive remuneration. They are not the effective governance mechanism that the minority shareholders can rely on. The additional analyses provide theoretical implication that the pervasive Type II agency conflict is ameliorated when the CEOs do not have family relationships with the controlling family shareholders.

The impact of VC backing on the corporate governance of Chinese IPOs

2017 ◽  
Vol 29 (3) ◽  
pp. 330-355 ◽  
Author(s):  
Qing (Sophie) Wang ◽  
Hamish D. Anderson ◽  
Jing Chi
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Independent Directors ◽  
Board Independence ◽  
Board Size ◽  
Content Type ◽  
Shareholder Protection ◽  
Political Ties ◽  
The Impact ◽  
Industry Experience

Purpose The purpose of this paper is to investigate how venture capital (VC) backing influences the board size and independence and how VC backing and board structure impact firm performance in China. Design/methodology/approach Using hand-collected data from 924 initial public offering (IPO) prospectuses covering the period from January 2004 to December 2012, the authors investigate the impact of VC backing on board size, board independence and firm market performance through regression analysis. A two-stage approach is also used to address the endogeneity issue. Findings The authors find robust evidence that VC-backed IPOs have more independent boards, after controlling for CEO and firm characteristics, and the potential endogeneity concerns. Furthermore, firms backed by VCs with management political ties (PTs) have more independent directors with industry relevant expertise than other firms. While no significant relationship is found between board independence and firm performance, the authors present some evidence that IPOs which have a larger percentage of independent directors with industry relevant expertise exhibit higher long-term stock returns, and VCs with management PTs also improve IPO long-run stock performance. Research limitations/implications Although VC is new in China and the Chinese capital market has relative poor corporate governance and weak minority shareholder protection, the authors find support in this paper that VC backing is valuable to IPO firms in China not only through providing funding but also by providing political ties and industry experience. However, Chinese regulatory and institutional settings have strong impact on test results and they change rapidly, so the results may not apply to other period in Chinese markets. Originality/value This paper sheds lights on the influences of VC backing on corporate governance and firm performance in a transitional and emerging economy. It discovers the value of VC investors in a transitional economy as of providing political ties and industry experience. The new definition of independent directors suggested by Suchard (2009) is first used by our paper in the Chinese context.

Corporate governance and voluntary disclosure: evidence from India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rupjyoti Saha ◽  
Kailash Chandra Kabra
Keyword(s):  
Corporate Governance ◽  
Voluntary Disclosure ◽  
Audit Committee ◽  
Negative Influence ◽  
Positive Influence ◽  
Annual Reports ◽  
Corporate Board ◽  
Content Type ◽  
Different Types ◽  
Significant Positive Influence

Purpose This study aims to examine the influence of some prominent corporate governance (CG) mechanisms such as board size (BS), board independence (BI), role duality (RD), board’s gender diversity (GD), ownership concentration (OC), audit committee independence (ACI), nomination and remuneration committee (NRC) and risk management committee (RMC) on voluntary disclosure (VD), as well as different types of VD after controlling the effect of some firm-specific factors for Indian firms. Design/methodology/approach The study selects market capitalization-based top 100 non-financial and non-utility firms listed on the Bombay Stock Exchange as on 31st March 2014. Data are drawn from the Capitaline Plus database over the period of 2014–2018. Appropriate panel data regression model is applied to examine the influence of CG on VD. Findings The study reveals a significant negative influence of BI on VD while GD and RMC exhibit a significant positive influence on the same. The remaining CG mechanisms such as BS, RD, OC, ACI and NRC appear to have no significant influence on VD. Analysis into the relationship between CG mechanisms and different types of VD reveals that BI, in particular, has a strong negative influence on corporate strategic disclosure (CSD) and forward looking disclosure (FWLD) while GD and RMC both exhibit a significant positive influence on CSD, FWLD, CG disclosure and financial and capital market disclosure. Notably, none of the CG mechanisms under consideration influence human and intellectual capital disclosure. Research limitations/implications The study considers annual reports as the only medium of making VD and ignores all other sources such as websites and press releases. Besides, it mainly emphasizes on corporate board structure, board committees and OC while other ownership structure-related variables family ownership, managerial ownership are not covered, which can be analysed in future studies. Practical implications The study offers some important theoretical, as well as practical connotations for regulators and practitioners operating in India, as well as other emerging economies having similar institutional settings. Originality/value The study is the first of its kind in India that examines the influence of various CG mechanisms on different types of VD and thereby contributes novel findings in the context of an emerging economy.

Determinants of dividend payout of construction companies: a panel data analysis

2019 ◽  
Vol 24 (1) ◽  
pp. 19-38 ◽  
Author(s):  
Harish Kumar Singla ◽  
Pradeepta Kumar Samanta
Keyword(s):  
Life Cycle ◽  
Cash Flow ◽  
Dividend Policy ◽  
Random Effect ◽  
Small Sample ◽  
Construction Sector ◽  
Dividend Payout ◽  
Content Type ◽  
Explanatory Variables ◽  
Construction Companies

Purpose This paper aims to examine the determinants of the dividend policy of the construction companies in India. Design/methodology/approach Data from 2011 to 2016 (six years) of 45 listed construction companies in India are collected, and a strong balanced panel is created. Dividend per share is dependent variable, and profitability, unstable earnings, institutional holding, cash flow, tangibility, liquidity, growth opportunities, age of the firm, life cycle, leverage, size of firm and taxation are explanatory variables. The panel is tested for stationarity and finally fixed and random-effect panel regression model with robust estimation option is performed. Findings The random effect model is found fit with an R2 of 62 per cent, and profitability, life cycle and size of the firm show a significant positive effect on dividend payment. Cash flow shows a negative significant relationship, indicating the presence of agency problem. Rest of the variables indicated an insignificant relationship. Research limitations/implications The study is carried out on a small sample of 45 companies with data of only six years. Further, there may be behavioral and psychological factors that drive the decision to declare dividend. Those factors have not been considered in present study. Despite considerable efforts, the author could not find more studies specific to the construction sector. Hence, the variables identified in the present study are more generic, even though a few sector-specific studies have been included. Originality/value The dividend policy determinants for the construction sector in India are investigated, and a comprehensive model based on 12 explanatory variables is tested to find the drivers of dividend payout in Indian construction companies. From the investor’s point of view, the sector has immense potential in terms of dividend as well as capital appreciation. Therefore, the study can be useful to the investors to understand the drivers of dividend payout in the construction sector. It can also be crucial for companies to create an appropriate dividend policy so as to attract and retain investors. The study contributes significantly to the existing body of knowledge by recommending the salient drivers of dividend payout in the construction sector based on a comprehensive dataset and using robust methodology.

Dividend policy in India: reconciling theory and evidence

2020 ◽  
Vol 46 (11) ◽  
pp. 1437-1453
Author(s):  
Bipin Kumar Dixit ◽  
Nilesh Gupta ◽  
Suman Saurabh
Keyword(s):  
Life Cycle ◽  
Dividend Policy ◽  
Indirect Evidence ◽  
Rate Of Change ◽  
Dividend Payment ◽  
Dividend Payout ◽  
Content Type ◽  
Life Cycle Theory ◽  
The Relationship ◽  
Indian Data

PurposeThe purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.Design/methodology/approachThe authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.FindingsThe results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.Originality/valueIt provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.

scholarly journals The influence of board independence on dividend policy in controlling agency problems in family firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Erhan Kilincarslan
Keyword(s):  
Dividend Policy ◽  
Family Firms ◽  
Agency Problems ◽  
Fiscal Year ◽  
Independent Directors ◽  
Board Independence ◽  
Minority Shareholders ◽  
Content Type ◽  
Turkish Family ◽  
The Impact

Purpose This study aims to investigate the impact of board independence on the cash dividend payments of family firms listed on the Borsa Istanbul (BIST) in balancing controlling families’ power to mitigate agency problems between family and minority shareholders in the post-2012 period. The authors focus on this period because Turkish authorities implemented mandatory regulations on the employment of independent directors on boards from fiscal year 2012. Design/methodology/approach The research model uses a panel dataset of 153 BIST-listed family firms over the period 2012–2017, employs alternative dependent variables and regression techniques and is applied to various sub-groups to improve robustness. Findings The empirical results show a strong positive effect of board independence on dividend decisions. The authors further detect that family directorship exhibits a negative effect, whereas both board size and audit committees have positive influences but chief executive officer (CEO)/duality has had no significant impact on the dividend policies of Turkish family firms since the new compulsory legal requirements in the Turkish market. Research limitations/implications The findings suggest that independent directorship and dividend policy are complementary governance mechanisms to reduce agency conflicts between families and minority shareholders in Turkey, which is a civil law-based emerging country characterized by high family ownership concentration. Practical implications The authors present evidence that Turkish family firms’ corporate boards have evolved, to some extent, from being managerial rubber stamps to more independent boards that raise opposing voices in family decision-making. However, independent directors’ preference for dividend-induced capital market monitoring implies that their direct monitoring is less effective than it is supposed to be. This suggests a need to revise the Turkish Corporate Governance Principles to enhance independent directors’ monitoring and supervisory power. Originality/value This is thought to be the first study to provide insights on how board independence influences dividend policy in controlling agency problems in Turkish family firms since Turkish authorities introduced compulsory rules on the employment of independent directors on boards.

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