Does corporate governance explain dividend policy in Sub‐Saharan Africa?

Abstract

PurposeThis study aims to examine the effect of corporate governance on firms' dividend payout policy in sub‐Saharan Africa. The study also aims to examine how dividend payout influences corporate governance.Design/methodology/approachUsing a sample made up 27 Ghanaian firms, 177 Nigerian firms, 51 Kenyan firms, and 270 South African firms covering the period 1997‐2006, the paper employs a simultaneous panel regression model in its estimation.FindingsThe results show that board composition and board size exhibit significantly positive relationship with dividend payout in Kenya and Ghana, respectively. Institutional ownership positively influences dividend payout among South African and Kenyan firms. In the case of Nigeria, all the corporate governance measures show significantly negative effects on dividend payout. The findings clearly suggest that, with respect to South Africa, Kenya and Ghana, good corporate governance structures lead to high‐dividend payout, probably due to easy access to and low cost of external finance. However, in Nigeria, improving the governance structures may be associated with high‐earnings retention or low‐dividend payment in order to reduce cost of external finance. We found in the case of Ghana that, dividend payout positively affects board composition, suggesting that Ghanaian firms with high‐payout tend to adopt good corporate governance structures in order to ensure protection of shareholder interest. The findings of this study certainly have important policy implications.Originality/valueThis present study contributes to the corporate governance literature by looking at the importance of corporate governance in influencing firms' dividend behaviour in selected African countries.

The mediating effect of leverage and dividend policy on the influence of corporate governance towards firm value

“…The relationship between corporate governance and dividend policy may differ depending upon the access of interest-bearing debt [17]. In South Africa, Kenya and Ghana, it was found that there was positive relationship between corporate governance and dividend payout as the other researches [18] [19], while in Nigeria, corporate governance was linked negatively to dividend payout.…”

“…In South Africa, Kenya and Ghana, it was found that there was positive relationship between corporate governance and dividend payout as the other researches [18] [19], while in Nigeria, corporate governance was linked negatively to dividend payout. Companies in Nigeria tended to reduce the cost of debt [17]. Regarding dividend policy and firm value, dividend per share and dividend yield are both factors in determining share prices [20].…”

Corporate governance and dividend pay-out policy in UK listed SMEs

“…By contrast, studies examining the extent to which corporate governance mechanisms affect dividend policy are generally scarce, but particularly acute in the case of SMEs (Thanatawee, 2012;Abor & Fiador, 2013;Arshad et al, 2013;Ghasemi et al 2013;Iqbal 2013;Mansourinia et al 2013). Therefore, in this section, we seek to contribute to the extant literature by examining how corporate board characteristics (i.e., board size, board independence, CEO role duality, frequency of board meetings, board gender diversity and audit committee size) can affect dividend policy of SMEs.…”

“…Prior evidence on the link between CEO duality and divdend pay-out rates is generally mixed (Abor & Fiador, 2013;Hu & Kumar, 2004;Mansourinia et al, 2013;Litai et al, 2011;Zhang, 2008;Subramaniam & Devi, 2011). For example, and consistent with the results of previous studies (Abor & Fiador, 2013;Ghosh & Sirmans, 2006;Litai et al, 2011;Sharma, 2011), Zhang (2008 report a negative association between CEO duality and dividend pay-out policy using a sample of Chinese firms.…”

“…By contrast and despite suggestions that dividend policy is determined by corporate boards and top executives (Borokhovich et al, 2005;Ghosh & Sirmans, 2006;How et al, 2008;Al-Najjar & Hussainey, 2009;Borokhovich et al, 2013;Ghasemi et al, 2013), existing studies examining the effect of corporate governance on dividend pay-out are rare (How et al, 2008;Ghosh & Sirmans, 2006;Zhang, 2008;Al-Najjar & Hussainey, 2009;Harada & Nguyen, 2011;Jiraporn et al, 2011;Litai et al, 2011). Third, the limited prior studies examining the impact of corporate governance on dividend pay-out have also focused almost exclusively on large listed public corporations to the neglect of SMEs (Sharma, 2011;Subramaniam & Devi, 2011;Al-Swidi et al, 2012;Al-Taleb et al, 2012;Gill & Obradovich, 2012;Thanatawee, 2012;Abor & Fiador, 2013;Arshad et al, 2013). Finally, despite increasing evidence that poor corporate governance practices played a role in instigating the 2007/08 global financial crisis (Al-Bassam et al, 2015), there have been limited empirical studies, and inadequate critical reflections on the role of good governance on a number of organisational outcomes, such as dividend policy following the crisis.…”