Do Coâ€ Opted Directors Influence Dividend Policy?
Pornsit Jiraporn and
Sang Mook Lee
Financial Management, 2018, vol. 47, issue 2, 349-381
We explore how coâ€ opted directors affect dividend policy. Coâ€ opted directors are those appointed after the incumbent chief executive officer (CEO) assumes office. Our results show that coâ€ opted directors lead to a weaker propensity to pay dividends and, for dividendâ€ paying firms, significantly lower dividend payouts. We also show that board coâ€ option has more explanatory power for dividend policy than does the traditional measure of board effectiveness, that is, board independence. Exploiting the passage of the Sarbanesâ€ Oxley Act as a natural experiment, we show that the effect of board coâ€ option on dividend policy is more likely causal, rather than merely an association.
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