This study examined the impact of board size, independence and gender diversity on firm dividend payout. Furthermore, it examined whether the board characteristic–dividend payout relationship was moderated by free cash flows in the firm.
A total of 118 Indian firms representing multiple industries were examined for a period of four financial years from 2013 to 2016. The data are in panel form given the cross-sectional and time series nature of the study. Random effects specification was used for analysis
Results of the study indicated that the proportion of independent directors and proportion of female directors on the board have a negative and significant effect on dividend payout. In addition, the results showed a negative and significant moderating role of free cash flows, which implied that the magnitude of the impact of the proportion of independent directors and the proportion of female directors on the board on dividend payout is significantly greater in firms with high free cash flows. Overall, the results suggested that firms whose board characteristics signaled strong governance paid lower dividends.
This study contributes to a nuanced understanding of internal governance mechanisms by presenting evidence of the substitution hypothesis from an emerging economy, one in which firms operate within a unique regulatory framework of board composition.
