Hostname: page-component-7479d7b7d-68ccn Total loading time: 0 Render date: 2024-07-13T16:30:19.415Z Has data issue: false hasContentIssue false
  • English
  • Français

Board Reforms and Dividend Policy: International Evidence

Published online by Cambridge University Press:  05 August 2020

Kee-Hong Bae Open the ORCID record for Kee-Hong Bae [Opens in a new window] ,
Sadok El Ghoul ,
Omrane Guedhami  and
Xiaolan Zheng
Kee-Hong Bae*
Affiliation:
York University Schulich School of Businesskbae@schulich.yorku.ca
Sadok El Ghoul
Affiliation:
University of Alberta Campus Saint-Jeanelghoul@ualberta.ca
Omrane Guedhami
Affiliation:
University of South Carolina Moore School of Businessomrane.guedhami@moore.sc.edu
Xiaolan Zheng
Affiliation:
Nottingham University Business SchoolChinaxiaolan.zheng@nottingham.edu.cn
*
kbae@schulich.yorku.ca (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

We study the impact of board reforms implemented in 40 countries worldwide on corporate dividend policy. Using a difference-in-differences analysis, we find that firms pay higher dividends following the reforms. The increase in dividend payouts is more pronounced for firms with weak board governance in the pre-reform period and those in countries with strong external governance mechanisms. Our findings corroborate the dividend outcome model, which postulates that board reforms strengthen the monitoring role of the board and empower outside shareholders to force management to disgorge dividends.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 4 , June 2021 , pp. 1296 - 1320
Copyright
© THE AUTHOR(S), 2020. PUBLISHED BY CAMBRIDGE UNIVERSITY PRESS ON BEHALF OF THE MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are grateful for comments from an anonymous reviewer, Narjess Boubakri, Ruiyuan Chen, Wolfgang Drobetz, Sattar Mansi, Mark Mulcahy, Xinming Li, He Wang, Ying Zheng, and participants at the 2019 Financial Management Association Meeting. El Ghoul appreciates the generous financial support from Canada’s Social Sciences and Humanities Research Council (Grant 435-2017-1223). Any errors are our own.

References

Adams, R. B.; Hermalin, B. E.; and Weisbach, M. S.. “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey.” Journal of Economic Literature, 48 (2010), 58–107.10.1257/jel.48.1.58CrossRefGoogle Scholar
Adjaoud, F., and Ben-Amar, W.. “Corporate Governance and Dividend Policy: Shareholders’ Protection or Expropriation?" Journal of Business Finance and Accounting, 37 (2010), 648–667.CrossRefGoogle Scholar
Atanasov, V., and Black, B.. “Shock-Based Causal Inference in Corporate Finance and Accounting Research.” Critical Finance Review, 5 (2016), 207–304.10.1561/104.00000036CrossRefGoogle Scholar
Attig, N.; Boubakri, N.; Ghoul, S. El; and Guedhami, O.. “The Global Financial Crisis, Family Control, and Dividend Policy.” Financial Management, 45 (2016), 291–313.CrossRefGoogle Scholar
Baker, M., and Wurgler, J.. “Appearing and Disappearing Dividends: The Link to Catering Incentives.” Journal of Financial Economics, 73 (2004), 271–288.CrossRefGoogle Scholar
Balsmeier, B.; Fleming, L.; and Manso, G.. “Independent Boards and Innovation.” Journal of Financial Economics, 123 (2017), 536–557.CrossRefGoogle Scholar
Banerjee, S.; Humphery-Jenner, M.; and Nanda, V.. “Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act.” Review of Financial Studies, 28 (2015), 2812–2858.10.1093/rfs/hhv034CrossRefGoogle Scholar
Ben-Nasr, H. “Government Ownership and Dividend Policy: Evidence from Newly Privatised Firms.” Journal of Business Finance and Accounting, 42 (2015), 665–704.CrossRefGoogle Scholar
Bertrand, M., and Mullainathan, S.. “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111 (2003), 1043–1075.10.1086/376950CrossRefGoogle Scholar
Bhattacharya, U., and Daouk, H.. “The World Price of Insider Trading.” Journal of Finance, 57 (2002), 75–108.10.1111/1540-6261.00416CrossRefGoogle Scholar
Black, B., and Kim, W.. “The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data.” Journal of Financial Economics, 104 (2012), 203–226.CrossRefGoogle Scholar
Brockman, P.; Tresl, J.; and Unlu, E.. “The Impact of Insider Trading Laws on Dividend Payout Policy.” Journal of Corporate Finance, 29 (2014), 263–287.10.1016/j.jcorpfin.2014.09.002CrossRefGoogle Scholar
Brockman, P., and Unlu, E.. “Dividend Policy, Creditor Rights, and the Agency Costs of Debt.” Journal of Financial Economics, 92 (2009), 276–299.CrossRefGoogle Scholar
Cameron, A. C., and Miller, D. L.. “A Practitioner’s Guide to Cluster-Robust Inference.” Journal of Human Resources, 50 (2015), 317–372.CrossRefGoogle Scholar
Choi, J. J.; Park, S. W.; and Yoo, S. S.. “The Value of Outside Directors: Evidence from Corporate Governance Reform in Korea.” Journal of Financial and Quantitative Analysis, 42 (2007), 941–962.10.1017/S0022109000003458CrossRefGoogle Scholar
Dahya, J., and McConnell, J.. “Board Composition, Corporate Performance, and the Cadbury Committee Recommendation.” Journal of Financial Quantitative Analysis, 42 (2007), 535–564.10.1017/S0022109000004099CrossRefGoogle Scholar
Djankov, S.; Porta, R. La; Lopez-de-Silanes, F.; and Shleifer, A.. “The Law and Economics of Self-Dealing.” Journal of Financial Economics, 88 (2008), 430–465.CrossRefGoogle Scholar
Duchin, R.; Matsusaka, J. G.; and Ozbas, O.. “When Are Outside Directors Effective?” Journal of Financial Economics, 96 (2010), 195–214.CrossRefGoogle Scholar
Fauver, L.; Hung, M.; Li, X.; and Taboada, A. G.. “Board Reforms and Firm Value: Worldwide Evidence.” Journal of Financial Economics, 125 (2017), 120–142.CrossRefGoogle Scholar
Freedom House. “Freedom of the Press 2018.” Freedom House Report, available at http://www.freedomhouse.org (2018).Google Scholar
Glendening, M.; Khurana, I. K.; and Wang, W.. “The Market for Corporate Control and Dividend Policies: Cross-Country Evidence from M&A Laws.” Journal of International Business Studies, 47 (2016), 1106–1134.10.1057/s41267-016-0028-xCrossRefGoogle Scholar
Gompers, P.; Ishii, J.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107–156.CrossRefGoogle Scholar
Guedhami, O.; Kwok, C. C.; and Shao, L.. “Political Freedom and Corporate Payouts.” Journal of Corporate Finance, 43 (2017), 514–529.10.1016/j.jcorpfin.2017.02.002CrossRefGoogle Scholar
Hail, L.; Sikes, S.; and Wang, C.. “Cross-Country Evidence on the Relation between Capital Gains Taxes, Risk, and Expected Returns.” Journal of Public Economics, 151 (2017), 56–73.10.1016/j.jpubeco.2015.12.001CrossRefGoogle Scholar
Hail, L.; Tahoun, A.; and Wang, C.. “Dividend Payouts and Information Shocks.” Journal of Accounting Research, 52 (2014), 403–456.CrossRefGoogle Scholar
He, W.; Ng, L.; Zaiats, N.; and Zhang, B.. “Dividend Policy and Earnings Management across Countries.” Journal of Corporate Finance, 42 (2017), 267–286.CrossRefGoogle Scholar
Hossain, M.; Prevost, A. K.; and Rao, R. P.. “Corporate Governance in New Zealand: The Effect of the 1993 Companies Act on the Relation between Board Composition and Firm Performance.” Pacific-Basin Finance Journal, 9 (2001), 119–145.CrossRefGoogle Scholar
Imbens, G. W., and Wooldridge, J. M.. “Recent Developments in the Econometrics of Program Evaluation.” Journal of Economic Literature, 47 (2009), 5–86.10.1257/jel.47.1.5CrossRefGoogle Scholar
Jiraporn, P.; Kim, J. C.; and Kim, Y. S.. “Dividend Payouts and Corporate Governance Quality: An Empirical Investigation.” Financial Review, 46 (2011), 251–279.CrossRefGoogle Scholar
Jiraporn, P., and Lee, S. M.. “How Do Independent Directors Influence Corporate Risk‐Taking? Evidence from a Quasi‐Natural Experiment.” International Review of Finance, 18 (2018), 507–519.CrossRefGoogle Scholar
Jo, H., and Pan, C.. “Why Are Firms with Entrenched Managers More Likely to Pay Dividends?” Review of Accounting and Finance, 8 (2009), 87–116.CrossRefGoogle Scholar
John, K., and Knyazeva, A.. “ Payout Policy, Agency Conflicts, and Corporate Governance .” Working Paper, New York University (2006).CrossRefGoogle Scholar
Jordan, B. D.; Liu, M. H.; and Wu, Q.. “Corporate Payout Policy in Dual-Class Firms.” Journal of Corporate Finance, 26 (2014), 1–19.CrossRefGoogle Scholar
Kaufmann, D.; Kraay, A.; and Mastruzzi, M.. “ Governance Matters VIII: Aggregate and Individual Governance Indicators: 1996–2008.” Working Paper, World Bank (2009).10.1596/1813-9450-4978CrossRefGoogle Scholar
Kim, E. H., and Lu, Y.. “Corporate Governance Reforms around the World and Cross-Border Acquisitions.” Journal of Corporate Finance, 22 (2013), 236–253.CrossRefGoogle Scholar
Koirala, S.; Marshall, A.; Neupane, S.; and Thapa, C.. “Corporate Governance Reform and Risk-Taking: Evidence from a Quasi-Natural Experiment in an Emerging Market.” Journal of Corporate Finance, 61 (2020), 101396.10.1016/j.jcorpfin.2018.08.007CrossRefGoogle Scholar
La Porta, R.; Lopez-De-Silanes, F.; Shleifer, A.; and Vishny, R. W.. “Law and Finance.” Journal of Political Economy, 106 (1998), 1113–1155.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. W.. “Agency Problems and Dividend Policies around the World.” Journal of Finance, 55 (2000), 1–33.10.1111/0022-1082.00199CrossRefGoogle Scholar
Lel, U., and Miller, D. P.. “Does Takeover Activity Cause Managerial Discipline? Evidence from International M&A Laws.” Review of Financial Studies, 28 (2015), 1588–1622.CrossRefGoogle Scholar
Leuz, C.; Nanda, D.; and Wysocki, P. D.. “Earnings Management and Investor Protection: An International Comparison.” Journal of Financial Economics, 69 (2003), 505–527.CrossRefGoogle Scholar
Liu, Y.; Miletkov, M. K.; Wei, Z.; and Yang, T.. “Board Independence and Firm Performance in China.” Journal of Corporate Finance, 30 (2015), 223–244.10.1016/j.jcorpfin.2014.12.004CrossRefGoogle Scholar
Mitton, T. “Corporate Governance and Dividend Policy in Emerging Markets.” Emerging Markets Review, 5 (2004), 409–426.10.1016/j.ememar.2004.05.003CrossRefGoogle Scholar
Officer, M. S. “ Dividend Policy, Dividend Initiations, and Governance .” Working Paper, University of Southern California (2007).Google Scholar
Pinkowitz, L.; Stulz, R. M.; and Williamson, R.. “Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross-Country Analysis.” Journal of Finance, 61 (2006), 2725–2751.10.1111/j.1540-6261.2006.01003.xCrossRefGoogle Scholar
Price, R.; Román, F. J.; and Rountree, B.. “The Impact of Governance Reform on Performance and Transparency.” Journal of Financial Economics, 99 (2011), 76–96.CrossRefGoogle Scholar
Schnyder, G. “The Law and Finance School: What Concept of Law?” Working Paper, Loughborough University London (2016).10.2139/ssrn.2859950CrossRefGoogle Scholar