Does board demographic diversity affect the dividend payout policy in Turkey?

Abstract

PurposeThe purpose of this study is to investigate the impact of board demographic diversity on the dividend payout policy in Turkish capital markets.Design/methodology/approachUsing a sample of 67 non-financial companies listed on Borsa Istanbul 100 index from 2013 to 2018, this study examines the influence of board demographic diversity on dividend payout policies in Turkish capital markets. The authors also create a Demographic Board Diversity Index (DBDI) to estimate the composite cognitive diversity. The authors use dividend payment probability, dividend payout ratio, and dividend yield to measure the dividend policy and employ panel logit and tobit regression models.FindingsThe results indicate that diversity in nationality, experience and educational background play an influential role in encouraging companies to pay high dividends, while gender, tenure and age diversity are insignificant in affecting dividend payments. The findings also suggest that the DBDI positively affects the companies in formulating the dividend payout policies. Finally, the findings show that the family-owned companies with diverse board members have a negative influence on dividend payment intensity.Originality/valueThe results offer valuable insights for companies and policymakers in emerging markets to develop a more refined governance structure accommodating board demographic diversity attributes to mitigate agency conflicts between controlling and minority shareholders through setting up effective dividend payout policies.

Can Board Diversity Promote Dividend Policy? Seeking The Role of Profitability

“…In the dividend context, He et al (2016) explained that the chairman of the board with a business school educational background is less inclined to pay a dividend, although they are more risk averse and prefer sound business strategy, they may accept excessive investment behavior of managers for the sake of short-term stock price growth, or even accept managers to make the harmful decision to the shareholder. Contrary to that, Khan et al (2022) found a positive and significant relationship between BOD educational level and dividends. They convey ideas and solutions to problems that lead to more optimal resource management.…”

“…Giannetti et al (2015) observed that they have unique resources that facilitate entry into international markets and transfer knowledge of management practices, resulting in soaring performance. They are also classified as having a more independent nature and willing to provide all ideas, commitments, and responsibilities only for the benefit of shareholders, thereby increasing performance and attracting new investors (Khan et al, 2022). In the context of dividends, Shehata (2021) documents that the presence of foreign nationals is deemed capable of paying attention to the interests of shareholders, as evidenced by the increase in dividend payments.…”

“…Foreign directors have unique resources that boost entry into international markets and transfer knowledge of management practices, resulting in rocketing performance (Giannetti et al, 2015). As they are more likely to increase profitability, they will be able to attract investors (Khan et al, 2022). In addition, they tend to be loyal to investors and promote dividends (Khan et al, 2022;Shehata, 2021); thus, they can better overcome information asymmetry and agency conflict.…”

“…Generally, investors desire a stable dividend announcement followed by a high nominal dividend (Bhattacharyya, 2007;Ismail et al, 2018) Furthermore, many works of literature emphasize that directors are considered to carry out good corporate governance practices if they encourage dividends (Tahir et al, 2020). Thus, previous research tends to examine the relationship between board of directors (BOD) characteristics and dividends, such as BOD size (Khan et al, 2022;Rajput & Jhunjhunwala, 2019;Thompson & Adasi Manu, 2020). They explained that a larger board size is more capable of maximizing operations than a smaller BOD size.…”

“…Moreover, the relationship between BOD education level and the dividend has been answered by Khan et al (2022). However, their work provides dubious evidence.…”