The impact of board composition and ownership structure on dividend payout policy: evidence from Saudi Arabia

Abstract

PurposeThis study examines the impact of board composition and ownership structure variables on dividend payout policy in Saudi Arabian firms. In particular, it aims to determine the effect of board size, independence and meeting frequency, in addition to chief executive officer (CEO) duality, and state, institutional, managerial, family, and foreign ownership on both the propensity to pay dividends and dividend per share for Saudi-listed firms over the period 2016–2019.Design/methodology/approachThe paper captures dividend policy with two measures, propensity to pay dividends and dividend per share, and employs a range of regression methods (logistic, probit, ordinary least squares (OLS) and random effects regressions) along with a two-stage least squares (2SLS) model for robustness to account for heteroscedasticity, serial correlation and endogeneity issues. The data set is a large panel of 280 Saudi-listed firms over the period 2016 to 2019.FindingsThe results underline the importance of board composition and the ownership structure in explaining variations in dividend policy across Saudi firms. More specifically, there is a positive relationship between the propensity to pay dividends and board-meeting frequency, institutional ownership, firm profitability and firm age, while the degree of board independence, firm size and leverage exhibit a negative relation. Further, dividend per share is positively related to board meeting frequency, institutional ownership, foreign ownership, firm profitability and age, while it is negatively related to CEO duality, managerial ownership, and firm leverage. There is no evidence that family ownership exerts an impact on dividend payout policy in Saudi firms. The findings of this study support agency, signalling, substitute and outcome theories of dividend policy.Research limitations/implicationsThis study offers an important insight into the board characteristic and ownership structure drivers of dividend policy in the context of an emerging market. Moreover, the study has important implications for firms, managers, investors, policymakers, and regulators in Saudi Arabia.Originality/valueThis paper contributes to the existing literature by providing evidence on four board and five ownership characteristic drivers of dividend policy in Saudi Arabia as an emerging stock market, thereby improving on less comprehensive previous studies. The study recommends that investors consider board composition and ownership structure characteristics of firms as key drivers of dividend policy when making stock investment decisions to inform them about the propensity of investee firms to pay dividends and maintain a given dividend policy.

Does Ownership Structure Influence Dividend Distribution Policy in India? Evidence Using Panel Data Analysis

“…Huang and Paul (2017) have found that institutional-investors prefer investing in dividend-paying firms. Similar results are also reported by Guo and Ni (2008)—for US; Fairchild et al (2014) and Thanatawee (2013)—for Thailand; Boshnak (2021)—for Saudi Arabia; Bataineh (2021)—for Jordon; Thi et al (2019)—for Vietnam; and Manos (2003)—for India. Huang and Paul (2017) further corroborate their findings by depicting that the level of payout preference also depends on the company’s growth opportunities.…”

“…Boshnak (2021) has examined the corporate-governance impact and the impact of ownership structure on dividend-policy of the Saudi listed companies. For ownership structure variables, the study exhibits that INS associates positively to both the tendency to pay dividends and dividend per share (DPS).…”

“…Hence, both these decisions conflict with each other. Thus, the dividend decision by the management, involves harmonising the needs of the shareholders’ without compromising the growth of the company (Boshnak, 2021).…”

Pengaruh Struktur Kepemilikan dan Karakteristik Dewan Direksi terhadap Kebijakan Pembayaran Dividen Perusahaan Manufaktur di Indonesia

“…Dewan direksi yang menentukan apakah perusahaan akan membayar dividen dan menentukan tingkat dividen yang akan dibayarkan kepada investor. Keputusan ini dipengaruhi oleh struktur kepemilikan sebagai tata kelola perusahaan, yang memisahkan antara kepemilikan institusi, investor retail, manajer, pemerintah, dan apakah kepemilikan terkonsentrasi atau tersebar (Boshnak, 2021). Kebijakan Dividen merupakan isu yang telah lama menjadi polemik bagi perusahaan di berbagai negara berkembang.…”

Dampak Tata Kelola Perusahaan Terhadap Kebijakan Pembayaran Dividen Pada Perusahaan Manufaktur

“…Penelitian tersebut menemukan hasil board size memiliki pengaruh positif dan signifikan terhadap DPR, board gender diversity berpengaruh negatif terhadap DPR, financial leverage berpengaruh negatif dan signifikan terhadap DPR, dan ROA memiliki pengaruh positif dan signifikan terhadap DPR. (Boshnak, 2021) meneliti dengan pembahasan yang sejenis, yaitu mengenai pengaruh board size, struktur kepemilikan perusahaan, rapat dewan, dewan independen, profitabilitas, firm age, firm size dan financial leverage terhadap kebijakan pembayaran dividen, menemukan hasil bahwa struktur kepemilikan perusahaan, rapat dewan, profitabilitas, dan firm age menunjukkan adanya pengaruh yang positif terhadap kebijakan dividen. Sementar itu, board size, dewan independen, firm size, dan financial leverage berpengaruh negatif terhadap kebijakan pembayaran dividen.…”