IMPACT OF BOARD VARIABLES ON DIVIDEND PAY-OUT POLICY: EVIDENCE FROM INDIA

Abstract

Dividend pay-out policy continues to be a topic of ongoing discussion, with debates extending across both developed and developing nations. A crucial yet unresolved aspect of this discourse revolves around discerning the factors that shape dividend pay-out policy. While much of the finance literature predominantly focuses on financial determinants, the significance of board variables in shaping dividend pay-out policies often goes overlooked. Considering that dividend pay-out is a critical decision made by the board, its relationship with corporate governance warrants examination. Also, various measures were taken by the Indian capital market regulator to enhance corporate governance within the country. Clause 49 of the listing agreement was amended in 2014 to strengthen the corporate governance in Indian listed firms and bring conformity with the Companies Act 2013. Against this backdrop, the present study aims to explore how corporate board variables influence dividend pay-out policies of Indian listed firms from 2013-14 to 2019-20. Specifically, the study examines how board characteristics, female director characteristics, and board financial expertise influence the dividend pay-out policy of Indian listed firms. To achieve this aim, the study is structured into three distinct objectives, with nine hypotheses formulated to systematically test these objectives. It is essential to note that this study focuses on firms operating within India and listed on the National Stock Exchange (NSE) NIFTY 500 index. The study utilizes the Panel Tobit regression technique, implemented through the STATA 15 version of the statistical software. The first objective of the study is to examine the impact of board characteristics on the dividend pay-out policy of 307 non-financial Indian listed firms over the period from 2013-14 to 2019-20, using Panel Tobit regression. The empirical findings of the regression model indicate that board size, board independence, female directors, and CEO duality are significant factors in determining the dividend pay-out policy of the selected Indian-listed firms. A positive relationship is observed for board size and female directors with dividend policy, suggesting higher dividend payments in firms with larger board sizes and firms with more females on board. Whereas, an inverse relationship is observed for board independence and CEO duality with dividend pay-out policy, implying lower dividend payments in firms with more independent directors on the board and in firms where the chairman of the board also serves as the CEO. Audit committee size does not emerge as a significant predictor of dividend policy in our sample. Overall, the results highlight the significant impact of board characteristics on the dividend pay-out policy of Indian listed firms. The second objective of the study aims to assess the influence of female director characteristics on the dividend pay-out policy of Indian listed firms. Particularly, this objective determines the impact of the presence of female directors, their positions on the board, and their critical mass participation on the dividend pay-out policy of the selected non-financial Indian firms. The results affirm a favorable association between the presence of female directors on board and the dividend pay-out policy. Additionally, regarding the position of female directors, the study reveals that female executive directors do not significantly influence dividend pay-outs. In contrast, independent female directors positively affect firms’ dividend pay-out policy, suggesting that females are not a uniform group. Furthermore, the findings empirically support the critical mass theory, suggesting that the presence of one or two female directors does not have a significant impact on dividend payments. However, a positive relationship is observed in firms with three or more female directors and their dividend policy. The last objective of the study examines the impact of board financial expertise on the dividend pay-out policy of Indian-listed firms. The results indicate a significant effect of board financial expertise on firms’ dividend pay-out policy, suggesting higher dividend payments in firms when more financial experts are on the board.