The association between dividend payout and outside directorships

Al-Najjar, B and Hussainey, Khaled (2009) The association between dividend payout and outside directorships. Journal of Applied Accounting Research, 10 (1 SRC). pp. 4-19. doi:10.1108/09675420910963360

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Abstract

Purpose – The purpose of this paper is to examine whether the number of outside directors on the board of directors and dividend payout are substitutes or complements mechanisms applied by UK firms to control agency conflicts of interest within the firm. Design/methodology/approach – The authors use tobit and logit regression models to examine the extent to which firms with a majority of outside directors on their boards experience significantly lower or higher dividend payout after controlling for insider ownership, profitability, liquidity, asset structure, business risk, firm size, firms' growth rate and borrowing ratio. Findings – Based on a sample of 400 non‐financial firms listed at London Stock Exchange for the period from 1991 to 2002, it was found that dividend payout is negatively associated with the number of outside directors on the board of directors. Originality/value – The results suggest that firms pay lower dividends when higher number of outside directors is employed on the board. This evidence is consistent with the substitution hypothesis, which indicated that firms with weak corporate governance need to establish a reputation by paying dividends. In other words, dividends substitute for independent directors on the board. This finding offers novel insights to policy makers interested in agency conflicts of interest within the firm. It also provides evidence on the use of different substitute mechanisms for reducing agency costs.

Item Type:	Article
Article Type:	Article
Uncontrolled Keywords:	Directors, Dividends, United Kingdom
Subjects:	H Social Sciences > HG Finance > HG4001 Finance management. Business finance H Social Sciences > HG Finance > HG4501 Investment, capital formation, speculation
Divisions:	Schools and Research Institutes > School of Business, Computing and Social Sciences
Research Priority Areas:	Applied Business & Technology
Depositing User:	Ineke Tijsma
Date Deposited:	10 Mar 2015 13:04
Last Modified:	07 Aug 2023 15:03
URI:	https://eprints.glos.ac.uk/id/eprint/1392

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