IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v60y2022ics0275531921002178.html
   My bibliography  Save this article

The effects of busy board on firm’s probability to pay dividends

Author

Listed:
  • Sun, Liang
  • Yu, Huaibing

Abstract

Using a comprehensive data sample covering the period 2000–2017, from the agency problem perspective, this paper reveals a significantly negative relationship between board busyness and firm’s probability of paying dividends. The empirical results show that firms tend to have a lower likelihood of paying out dividends if independent directors assume multiple board seats across several outside companies. This negative association still holds when firm’s share repurchase is taken into consideration. We also demonstrate that this negative association is subject to the context of firm innovation, independent director age, industry, and economic conditions. Our results are robust to alternative models, different measures of industry classification, and dividend payout amount.

Suggested Citation

  • Sun, Liang & Yu, Huaibing, 2022. "The effects of busy board on firm’s probability to pay dividends," Research in International Business and Finance, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:riibaf:v:60:y:2022:i:c:s0275531921002178
    DOI: 10.1016/j.ribaf.2021.101596
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531921002178
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2021.101596?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1111, June.
    2. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    3. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    4. Kuo, Jing-Ming & Philip, Dennis & Zhang, Qingjing, 2013. "What drives the disappearing dividends phenomenon?," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3499-3514.
    5. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, vol. 57(4), pages 1649-1684, August.
    6. Ye, Dezhu & Deng, Jie & Liu, Yi & Szewczyk, Samuel H. & Chen, Xiao, 2019. "Does board gender diversity increase dividend payouts? Analysis of global evidence," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 1-26.
    7. Ahn, Seoungpil & Walker, Mark D., 2007. "Corporate governance and the spinoff decision," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 76-93, March.
    8. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    9. Jun Zhou & Laurence Booth & Bin Chang, 2013. "Import competition and disappearing dividends," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(2), pages 138-154, February.
    10. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(4), pages 409-425, December.
    11. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    12. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
    13. Olubunmi Faleye & Rani Hoitash & Udi Hoitash, 2018. "Industry expertise on corporate boards," Review of Quantitative Finance and Accounting, Springer, vol. 50(2), pages 441-479, February.
    14. Huaibing Yu, 2019. "How Does CEO Equity-based Compensation Affect Firm’s Propensity of Issuing New Securities?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(4), pages 1-6.
    15. Jorge Farinha, 2003. "Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(9‐10), pages 1173-1209, December.
    16. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
    17. Klaus Gugler, 2003. "Corporate governance and investment," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 261-289.
    18. Chay, J.B. & Suh, Jungwon, 2009. "Payout policy and cash-flow uncertainty," Journal of Financial Economics, Elsevier, vol. 93(1), pages 88-107, July.
    19. Fatemi, Ali & Bildik, Recep, 2012. "Yes, dividends are disappearing: Worldwide evidence," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 662-677.
    20. Ira C. Harris & Katsuhiko Shimizu, 2004. "Too Busy To Serve? An Examination of the Influence of Overboarded Directors," Journal of Management Studies, Wiley Blackwell, vol. 41(5), pages 775-798, July.
    21. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    22. White, Lourdes Ferreira, 1996. "Executive compensation and dividend policy," Journal of Corporate Finance, Elsevier, vol. 2(4), pages 335-358, July.
    23. Enya He & David W. Sommer, 2010. "Separation of Ownership and Control: Implications for Board Composition," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 265-295, June.
    24. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    25. Alli, Kasim L & Khan, A Qayyum & Ramirez, Gabriel G, 1993. "Determinants of Corporate Dividend Policy: A Factorial Analysis," The Financial Review, Eastern Finance Association, vol. 28(4), pages 523-547, November.
    26. Gustavo Grullon & Roni Michaely, 2004. "The Information Content of Share Repurchase Programs," Journal of Finance, American Finance Association, vol. 59(2), pages 651-680, April.
    27. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    28. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
    29. Li, Donghui & Chen, Zhian & An, Zhe & Murong, Michael, 2017. "Do financial analysts play a role in shaping the rival response of target firms? International evidence," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 84-103.
    30. Officer, Micah S., 2011. "Overinvestment, corporate governance, and dividend initiations," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 710-724, June.
    31. Helen Kang & Mandy Cheng & Sidney J. Gray, 2007. "Corporate Governance and Board Composition: diversity and independence of Australian boards," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 194-207, March.
    32. Kale, Jayant R. & Kini, Omesh & Payne, Janet D., 2012. "The Dividend Initiation Decision of Newly Public Firms: Some Evidence on Signaling with Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(2), pages 365-396, April.
    33. Shivdasani, Anil, 1993. "Board composition, ownership structure, and hostile takeovers," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 167-198, April.
    34. Jagannathan, Murali & Stephens, Clifford P. & Weisbach, Michael S., 2000. "Financial flexibility and the choice between dividends and stock repurchases," Journal of Financial Economics, Elsevier, vol. 57(3), pages 355-384, September.
    35. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, June.
    36. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, April.
    37. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    38. Yin, Wesley, 2009. "R&D policy, agency costs and innovation in personalized medicine," Journal of Health Economics, Elsevier, vol. 28(5), pages 950-962, September.
    39. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
    40. Gugler, Klaus, 2003. "Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1297-1321, July.
    41. Briano-Turrent, Guadalupe D.C. & Li, Mingsheng & Peng, Hongfeng, 2020. "The impact of family-CEOs and their demographic characteristics on dividend payouts: Evidence from Latin America," Research in International Business and Finance, Elsevier, vol. 51(C).
    42. Malcolm Baker & Jeffrey Wurgler, 2004. "A Catering Theory of Dividends," Journal of Finance, American Finance Association, vol. 59(3), pages 1125-1165, June.
    43. D'Mello, Ranjan & Miranda, Mercedes, 2010. "Long-term debt and overinvestment agency problem," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 324-335, February.
    44. Sun, Liang, 2021. "Does the location of directors' additional positions matter? A new dimension of board structure," Global Finance Journal, Elsevier, vol. 49(C).
    45. Gaver, Jennifer J. & Gaver, Kenneth M., 1993. "Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 125-160, April.
    46. Core, John E. & Holthausen, Robert W. & Larcker, David F., 1999. "Corporate governance, chief executive officer compensation, and firm performance," Journal of Financial Economics, Elsevier, vol. 51(3), pages 371-406, March.
    47. Jorge Farinha, 2003. "Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(9-10), pages 1173-1209.
    48. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    49. Cassandra R. Cole & Enya He & Kathleen A. McCullough & David W. Sommer, 2011. "Separation of Ownership and Management: Implications for Risk‐Taking Behavior," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 14(1), pages 49-71, March.
    50. Jiang, Zhan & Kim, Kenneth A. & Lie, Erik & Yang, Sean, 2013. "Share repurchases, catering, and dividend substitution," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 36-50.
    51. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    52. Michael S. Rozeff, 1982. "Growth, Beta And Agency Costs As Determinants Of Dividend Payout Ratios," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 5(3), pages 249-259, September.
    53. Kaplan, Steven N. & Reishus, David, 1990. "Outside directorships and corporate performance," Journal of Financial Economics, Elsevier, vol. 27(2), pages 389-410, October.
    54. Jensen, Gerald R. & Solberg, Donald P. & Zorn, Thomas S., 1992. "Simultaneous Determination of Insider Ownership, Debt, and Dividend Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(2), pages 247-263, June.
    55. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2004. "Dividend Policy, Agency Costs, and Earned Equity," Working Paper Series 2004-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    56. Chae, Joon & Kim, Sungmin & Lee, Eun Jung, 2009. "How corporate governance affects payout policy under agency problems and external financing constraints," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2093-2101, November.
    57. Grigoris Giannarakis, 2014. "Corporate governance and financial characteristic effects on the extent of corporate social responsibility disclosure," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 10(4), pages 569-590, September.
    58. Hu, Aidong & Kumar, Praveen, 2004. "Managerial Entrenchment and Payout Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 759-790, December.
    59. James S. Linck & Jeffry M. Netter & Tina Yang, 2009. "The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors," Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3287-3328, August.
    60. Cuny, Charles J. & Martin, Gerald S. & Puthenpurackal, John J., 2009. "Stock Options and Total Payout," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(2), pages 391-410, April.
    61. An, Heng & Zhang, Ting, 2013. "Stock price synchronicity, crash risk, and institutional investors," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 1-15.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ye, Dezhu & Deng, Jie & Liu, Yi & Szewczyk, Samuel H. & Chen, Xiao, 2019. "Does board gender diversity increase dividend payouts? Analysis of global evidence," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 1-26.
    2. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    3. Sharma, Vineeta, 2011. "Independent directors and the propensity to pay dividends," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1001-1015, September.
    4. James, Hui & Benson, Bradley W. & Wu, Chen (Ken), 2017. "Does CEO ownership affect payout policy? Evidence from using CEO scaled wealth-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 328-345.
    5. Anneleen Michiels & Wim Voordeckers & Nadine Lybaert & Tensie Steijvers, 2015. "Dividends and family governance practices in private family firms," Small Business Economics, Springer, vol. 44(2), pages 299-314, February.
    6. Paul Tanyi & David B. Smith & Xiaoyan Cheng, 2021. "Does firm payout policy affect shareholders’ dissatisfaction with directors?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 279-320, July.
    7. Bradley Benson & Travis Davidson & Hui James & Hongxia Wang, 2022. "Board busyness and corporate payout: are all busy directors the same?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3711-3759, September.
    8. Trojanowski, G., 2004. "Ownership structure as a mechanism of corporate governance," Other publications TiSEM 5dbc874d-d1d0-44a5-9717-8, Tilburg University, School of Economics and Management.
    9. Hussain Haroon & Md-Rus Rohani & Al-Jaifi Hamdan Amer & Hussain Rana Yassir, 2022. "Determinants of Corporate Pay-Out Policy and the Moderating Effects of Firm's Growth: Evidence from Pakistan," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 32(3), pages 65-101, September.
    10. Hui Liang James & Hongxia Wang, 2021. "Independent director tenure and dividends," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(5-6), pages 1057-1091, May.
    11. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    12. Qurat Ul Ain & Xianghui Yuan & Hafiz Mustansar Javaid & Jinkai Zhao & Li Xiang, 2021. "Board Gender Diversity and Dividend Policy in Chinese Listed Firms," SAGE Open, , vol. 11(1), pages 21582440219, February.
    13. Nilakshi Borah & Hui Liang James & Jung Chul Park, 2020. "Does CEO inside debt compensation benefit both shareholders and debtholders?," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 159-203, January.
    14. Gyimah, Daniel & Gyapong, Ernest, 2021. "Managerial entrenchment and payout policy: A catering effect," International Review of Financial Analysis, Elsevier, vol. 73(C).
    15. Kambar Farooq & Muhammad Azeem & Chin Man Chui & Jun (Tony) Ruan, 2023. "Board Connections and Dividend Policy," Abacus, Accounting Foundation, University of Sydney, vol. 59(4), pages 983-1040, December.
    16. Lukas Setia‐Atmaja & George A. Tanewski & Michael Skully, 2009. "The Role of Dividends, Debt and Board Structure in the Governance of Family Controlled Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7‐8), pages 863-898, September.
    17. Smith, Deborah Drummond & Pennathur, Anita K. & Marciniak, Marek R., 2017. "Why do CEOs agree to the discipline of dividends?," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 38-48.
    18. Hasan, Mostafa Monzur & Uddin, Mohammad Riaz, 2022. "Do intangibles matter for corporate policies? Evidence from organization capital and corporate payout choices," Journal of Banking & Finance, Elsevier, vol. 135(C).
    19. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    20. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

    Busy board; Independent directors; Agency problem; Dividend payout; Corporate governance;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:60:y:2022:i:c:s0275531921002178. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.