Ownership Structure, Board Size, Board Composition and Dividend Policy: New Evidence From Two Emerging Markets

Abstract

Good corporate governance practices build equilibrium between management and shareholders and eliminate agency problems, as results managers pursue a suboptimal dividend policy. The aim of this study is to examine the potential relationship between ownership structure, board size, board composition, CEO duality and dividend policy of 176 listed firms at KSE and 280 listed firms at BSI from 2010-2015. We used pooled OLS regression test to analyze the association between corporate governance determinants and dividend policy. Among other methods, VIF and Hausman tests had been used to check the fitting of Random effects and fixed effects, while fixed effect method was chosen to test the hypothesis. We discover a positive association between managerial ownership, board size, board independent and dividend policy, while a negative association of ownership concentration and dividend policy. Finally, it is observed that there is a positive impact of return on assets (ROA) and size on dividend policy. This study will contribute to the existing literature through investigating the impact of corporate governance on dividend policies of listed firms in emerging markets.

Do CEO Duality and Ownership Concentration Impact Dividend Policy in Emerging Markets? The Moderating Effect of Crises Period

“…Rahman (2002) stipulates that dividend smoothing is negatively related to a country's ownership level as well as firm concentration. In another similar study, Shahid et al (2016) confirm these findings in the Pakistani and Indian contexts. They find a negative link between ownership concentration and DDP.…”

“…Based on this analysis, it is expected that boards chaired by the CEO will be less effective in limiting managerial discretion, particularly with respect to the DDP. To this end, in order to overcome the poor governance practices adopted by the management team members, other authors (e.g., Shahid et al 2016;Sumail 2018;Tahir et al 2020a) stipulate that the duality of functions would favor the distribution of dividends for controlling shareholders in firms with concentrated ownership. In this sense, Taleb and Ben Lahouel (2020) recently found that Tunisian firms with a CEO in charge tend to pursue a generous DDP.…”

“…Researchers have mainly focused on the different economic and financial elements that can guide companies' choices in terms of dividend distribution. Nevertheless, the debate on the DDP has caused much ink to flow to this day without reaching unanimous conclusions regarding the factors affecting this dividend policy (e.g., Tahir et al 2014;Benjamin and Zain 2015;Yarram and Dollery 2015;Al-Najjar and Kilincarslan 2016;Shahid et al 2016;Sindhu et al 2016;Chen et al 2017;Mehdi et al 2017;Obaidat 2018;Sumail 2018;Sanan 2019;Ye et al 2019;Jabeen and Ahmad 2019;Ahmad et al 2019). According to Ahmed et al (2020), dividend policy is a "puzzle" whose determinants are still poorly understood.…”

The Effect of Ownership Structure, Board Size and Firm Value on Corporate Financial Leverage and Dividends Policy: An Applied Study

“…The findings show that sample firms are more likely to pay dividends when they have a higher ownership concentration or when the largest shareholder is an institution, and that firms pay bigger dividends when the largest shareholder, especially an institution, owns a larger percentage of the stock. Furthermore, he discovered that higher institutional (individual) ownership increases (decreases) the likelihood of paying dividends and the amount of a dividend payout (Shahid et al 2016).…”

Ownership Concentration and Dividend Payout in Emerging Markets: Evidence from India

“…The issues of the relationship of dividends to ownership concentration or the impact of powerful shareholders on dividend payout have not been examined. Some studies, for example, Shahid, Gul, Rizwan, and Bucha (2016) do examine the issue of ownership concentration but adopt a narrow definition of concentration considering only three top shareholders for calculation of ownership concentration. No study, to our knowledge, examines the effect of the presence of large shareholding on dividend policy.…”