The effect of board independence on dividend payouts: A quasi-natural experiment

Pandej Chintrakarn, Pornsit Jiraporn, Sirimon Treepongkaruna and Sang Mook Lee

The North American Journal of Economics and Finance, 2022, vol. 63, issue C

Abstract: Motivated by agency theory, we investigate the effect of board independence on dividend policy. We exploit as a quasi-natural experiment the passage of the Sarbanes-Oxley Act and the associated exchange listing requirement, mandating firms to have a majority of independent directors. Our difference-in-difference estimates show that firms forced to raise board independence are significantly more likely to pay dividends than firms not required to change board independence. Our results are consistent with the notion that stronger board independence forces managers to disgorge more cash to shareholders, thereby reducing what is left for possible expropriation by opportunistic managers. Based on an exogenous regulatory shock, our results are more likely to show a casual effect, rather than merely an association.

Keywords: Dividends; Board independence; Independent directors; Corporate governance; Payout policy (search for similar items in EconPapers)
JEL-codes: G34 G35 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:63:y:2022:i:c:s1062940822001711

DOI: 10.1016/j.najef.2022.101836

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