Impact of economic policy uncertainty on dividend decision: A moderating role of board financial expertise

Abstract

Increased competition in the world of emerging financial markets has highlighted the need for more strategic and far‐sighted decisions. Living in a constrained economy investor has always been sensitive about the dividend patterns offered by the firm. Current study focuses on the moderating role of board financial expertise (BFE) on dividend decision of the firm during economic policy uncertainty (EPU), by taking data for 517 nonfinancial listed firms from year 2007–2015. Study presents its empirical model in two forms based on dividend initiation (Di) by nondividend payer firms and dividend termination (Dt) by already dividend paying firms during EPU. Logit model was employed to access the effect of explanatory variables on the probability of terminating the dividend by dividend payers and probability of initiating the dividend by nondividend payers during EPU. The results indicate that firms terminate dividend at the time of uncertainty, but when BFE was introduced as a moderator, previously nonpayer firms initiate dividend and previously payer firms sustain dividends payments at the time of EPU that remains robust with the inclusion of additional CEO level and corporate governance variables. Study further confirms during the EPU, dividend decisions in turn significantly affect firm value as supported by expectancy theory. Results suggest that BFE can be an important signal for keen market participants in deciding future dimensions of a firm.

Predicting Islamic Finance Adoption Behavior by MSMEs: Institutional Theory Approach

“…Several previous studies have supported that corporate governance positively influenced the dependency relationship between aspects related to uncertainty and various criterion. Corporate governance has been shown to play a moderating role in dependency relations involving determinants of environmental uncertainty (Aprisma & Sudaryati, 2020), economic policy uncertainty (Sarwar & Hassan, 2021), macroeconomic uncertainty (Chow et al, 2018), and acquisition transactions in sectors with complexity and uncertainty (Thraya et al, 2019).…”

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“…Additionally, female BODs tend to have a challenging relationship with investors (Khan et al, 2022). However, some previous studies (Ain et al, 2021;Sarwar & Hassan, 2021;Thompson & Adasi Manu, 2020;Ye et al, 2019) argued that female directors can improve the quality of supervision and decision-making, leading to higher dividend payments. The presence of women is needed to encourage the distribution of dividends during periods of economic uncertainty (Sarwar & Hassan, 2021).…”

“…However, some previous studies (Ain et al, 2021;Sarwar & Hassan, 2021;Thompson & Adasi Manu, 2020;Ye et al, 2019) argued that female directors can improve the quality of supervision and decision-making, leading to higher dividend payments. The presence of women is needed to encourage the distribution of dividends during periods of economic uncertainty (Sarwar & Hassan, 2021). When women are not treated as tokens (read: continuous increase), they may strengthen dividend distribution.…”

“…When women are not treated as tokens (read: continuous increase), they may strengthen dividend distribution. Referring to the agency theory, the hypothesis proposed is: H1c: Board gender positively affects dividends Nexuses Between Board Age, CSR Disclosure, Non-renewable Energy, and Dividends Younger directors are typically more inventive and far-sighted (Sarwar & Hassan, 2021). In addition, they offer novel perspectives on their alignment with environmental performance standards (Ibrahim & Hanefah, 2016).…”

“…However, another research argued that board expertise is vital in the business environment to solve problems that ultimately reduce agency costs and increase dividend payments (Khan et al (2022). It is more significant to promote dividends when there is economic uncertainty (Sarwar & Hassan, 2021). Additionally, board expertise is the primary influence of dividend policy (Thompson & Adasi Manu, 2020).…”