The Impact of Board Composition on the Dividend Policy of US Firms

Purpose: This paper examines whether the characteristics of boards are more important in determining dividend policy than management characteristics. We show that as the final declarers of dividend policy is a firm’s board, the composition of a firm’s board significantly subsumes the effect of management characteristics that may also influence dividend policy.Design/methodology/approach: Using the dividend declaration dummy variable, we run a fixed effect logistic regression of the dividend indicator on board characteristics, and managerial characteristics with firm level controls, year effects and industry effects while clustering standard errors at the firm level. For dividend yield variable which is censored at zero, we employ a fixed effect Tobit regression.Findings: The results of the study show that board characteristics such as average age, female presence, and size have a strong positive significant effect while board independent chair, and voting right of directors have a negative significant effect on the likelihood of dividend declaration. For dividend yields, the results suggest that the presence of directors with financial expertise and the board size are the main influencers of dividend policy. Managerial characteristics are subsumed by director characteristics for determining dividend policy. The results overall support the evidence on the monitoring role of boards on management.Originality/value: The originality and value of this study lies in the approach of including a comprehensive number of board characteristics unlike previous studies which makes the study of the influence of board composition on dividends more encompassing