Conditional Effect of Independent Directors on Dividend Payout Ratio: A Moderated Moderation Model of Shariah Compliance and Concentrated Ownership
DOI:
https://doi.org/10.56976/rjsi.v6i2.249Keywords:
Independent Directors, Dividend Payout Ratio, Concentrated Ownership, Shariah ComplianceAbstract
The study has been conducted to investigate the conditional effect of independent non-executive directors (INED) on dividend payout ratio (DPR) in Pakistani equity market when firms have concentrated ownership (CO) and are shariah-complaint (SC). The world has witnessed some huge financial debacles like Enron due to different agency problems. The study employed Hayes (2017) moderated moderation model to examine the conditional effect. The data included 250 non-financial firms 2010-2021 from Pakistan equity sector. Results suggest that INED negatively affects dividends, CO has a negative conditional effect on INEDs, and SC positively moderates the negative moderating conditional effect of CO on INEDs and DPR. Sectoral variations can introduce additional layers of complexity in the analysis and interesting outcomes. Therefore, it is suggested that future research should attempt to draw conclusions from different emerging sectors and economies such as China, India, Sri Lanka and Pakistan etc.
References
Abdelsalam, O., El‐Masry, A., & Elsegini, S. (2008). Board composition, ownership structure and dividend policies in an emerging market: Further evidence from CASE 50. Managerial finance, 34(12), 953-964.
Ajanthan, A. (2013). The relationship between dividend payout and firm profitability: A study of listed hotels and restaurant companies in Sri Lanka. International Journal of Scientific and Research Publications, 3(6), 1-6.
Al‐Najjar, B., & Hussainey, K. (2009). The association between dividend payout and outside directorships. Journal of Applied Accounting Research,10(1), 4-19.
Alnori, F., & Alqahtani, F. (2019). Capital structure and speed of adjustment in non-financial firms: Does sharia compliance matter? Evidence from Saudi Arabia. Emerging Markets Review, 39, 50-67.
Al-Qahtani, T. H., & Ajina, A. (2017). The impact of ownership structure on dividend policy the evidence from Saudi Arabia. Journal of Emerging Issues in Economics, Finance and Banking, 6(1), 2187-2202.
Aluchna, M., Berent, T., & Kamiński, B. (2019). Dividend payouts and shareholder structure: evidence from the Warsaw Stock Exchange. Eastern European Economics, 57(3), 227-250.
Anwer, Z., Mohamad, S., Paltrinieri, A., & Hassan, M. K. (2021). Dividend payout policy of Shariah compliant firms: Evidence from United States. Pacific-Basin Finance Journal, 69, 101422.
Banchit, A. (2022). Agency conflicts, dividend payments, and ownership concentration in comparison of shariah and non-shariah compliant listed companies. GATR Accounting and Finance Review, 7(2) 124 – 134.
Belden, S., Fister, T., & Knapp, R. W. (2005). Dividends and directors: do outsiders reduce agency costs?. Business and Society Review, 11(2), 171-180.
Benjamin, S. J., & Mat Zain, M. (2015). Corporate governance and dividends payout: are they substitutes or complementary?. Journal of Asia Business Studies, 9(2), 177-194.
Ben-Nasr, H., & Ghouma, H. H. (2022). Dividend policy and religion: International evidence from firms with Islamic Label. Emerging Markets Review, 50, 100840.
Chen, Z., Cheung, Y. L., Stouraitis, A., & Wong, A. W. (2005). Ownership concentration, firm performance, and dividend policy in Hong Kong. Pacific-Basin Finance Journal, 13(4), 431-449.
Ciftci, I., Tatoglu, E., Wood, G., Demirbag, M., & Zaim, S. (2019). Corporate governance and firm performance in emerging markets: Evidence from Turkey. International Business Review, 28(1), 90-103.
Cotter, J., & Silvester, M. (2003). Board and monitoring committee independence. Abacus, 39(2), 211-232.
Dam, L., & Scholtens, B. (2013). Ownership concentration and CSR policy of European multinational enterprises. Journal of Business Ethics, 118(1), 117-126.
Djebali, R., & Belanès, A. (2015). On the impact of family versus institutional blockholders on dividend policy. Journal of Applied Business Research (JABR), 31(4), 1329-1342.
Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of management, 16(1), 49-64.
Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American economic review, 74(4), 650-659.
Elmagrhi, M. H., Ntim, C. G., Crossley, R. M., Malagila, J. K., Fosu, S., & Vu, T. V. (2017). Corporate governance and dividend pay-out policy in UK listed SMEs: The effects of corporate board characteristics. International Journal of Accounting & Information Management, 25(4), 459-483.
Faccio, M., Lang, L. H. P., & Young, L. (2001). Dividends and expropriation. American economic review, 91(1), 54-78.
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of political economy, 88(2), 288-307.
Fama, E. F., & French, K. R. (2001). Disappearing dividends: changing firm characteristics or lower propensity to pay?. Journal of Financial economics, 60(1), 3-43.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of law and Economics, 26(2), 301-325.
Fang, C., & Wang, D. (2005). Demographic transition: implications for growth. The China boom and its discontents, 34.
Farooq, O., & Tbeur, O. (2013). Dividend policies of shariah-compliant and non-shariah-compliant firms: evidence from the MENA region. International Journal of Economics and Business Research, 6(2), 158-172.
Gelter, M. (2009). Dark side of shareholder influence: Managerial autonomy and stakeholder orientation in comparative corporate governance. Harv. Int'l LJ, 50, 129.
Gonzalez, M., Molina, C. A., Pablo, E., & Rosso, J. W. (2017). The effect of ownership concentration and composition on dividends: Evidence from Latin America. Emerging Markets Review, 30, 1-18
Grossman, S. J., & Hart, O. D. (1988). One share-one vote and the market for corporate control. Journal of financial economics, 20, 175-202.
Gugler, K., & Yurtoglu, B. B. (2003). Corporate governance and dividend pay-out policy in Germany. European economic review, 47(4), 731-758.
Hasan, M. B., Wahid, A. N., Amin, M. R., & Hossain, M. D. (2023). Dynamics between ownership structure and dividend policy: evidence from Bangladesh. International Journal of Emerging Markets, 18(3), 588-606.
Hayat, R., & Hassan, M. K. (2017). Does an Islamic label indicate good corporate governance?. Journal of Corporate Finance, 43, 159-174.
Hayes, A. F. (2017). Introduction to mediation, moderation, and conditional process analysis: A regression-based approach. Guilford publications.
Imamah, N., Lin, T. J., Handayani, S. R., & Hung, J. H. (2019). Islamic law, corporate governance, growth opportunities and dividend policy in Indonesia stock market. Pacific-Basin Finance Journal, 55, 110-126.
Iqbal, S. (2013). The impact of corporate governance on dividend decision of firms: Evidence from Pakistan. African Journal of Business Management, 7(11), 811-817.
Iqbal, Z., & Mirakhor, A. (2004). Stakeholders model of governance in Islamic economic system. Islamic Economic Studies, 11(2).
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Kasim, N., NuHtay, M. S. N., & Salman, S. A. (2013). Shariah governance for Islamic capital market: A step forward. International Journal of Educational Research, 1(6), 1-14.
Kilincarslan, E. (2021). The influence of board independence on dividend policy in controlling agency problems in family firms. International Journal of Accounting & Information Management, 29(4), 552-582.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., &Vishny, R. (2000). Investor protection and corporate governance. Journal of financial economics, 58(1-2), 3-27.
Lane, S., Astrachan, J., Keyt, A., & McMillan, K. (2006). Guidelines for family business boards of directors. Family Business Review, 19(2), 147-167.
Larbsh, M. M. (2015). Islamic perspective of corporate governance. Accounting Department. Faculty of Economic and Commerce. Al-Asmarya Islamic University, 17(1).
Lewis, B. (2005). Freedom and justice in the modern Middle East. Foreign Aff., 84, 36.
Mansourinia, E., Emamgholipour, M., Rekabdarkolaei, E. A., & Hozoori, M. (2013). The effect of board size, board independence and CEO duality on dividend policy of companies: Evidence from Tehran stock exchange. International Journal of Economy, Management and Social Sciences, 2(6), 237-241.
Michaely, R., & Roberts, M. R. (2012). Corporate dividend policies: Lessons from private firms. The Review of Financial Studies, 25(3), 711-746.
Mitton, T. (2004). Corporate governance and dividend policy in emerging markets. Emerging markets review, 5(4), 409-426.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American economic review, 48(3), 261-297.
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American economic review, 53(3), 433-443.
Moortgat, L., Annaert, J., & Deloof, M. (2017). Investor protection, taxation and dividend policy: Long-run evidence, 1838–2012. Journal of Banking & Finance, 85, 113-131.
Morck, R., & Yeung, B. (2004). Family control and the rent–seeking society. Entrepreneurship theory and practice, 28(4), 391-409.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
Naz, I., Shah, S. M. A., & Kutan, A. M. (2017). Do managers of sharia-compliant firms have distinctive financial styles?. Journal of International Financial Markets, Institutions and Money, 46, 174-187.
Rajput, M., & Jhunjhunwala, S. (2019). Corporate governance and payout policy: evidence from India. Corporate Governance: The International Journal of Business in Society.
Rajverma, A. K., Arrawatia, R., Misra, A. K., & Chandra, A. (2019). Ownership structure influencing the joint determination of dividend, leverage, and cost of capital. Cogent Economics & Finance, 7(1), 1041-1061.
Riaz, S., Liu, Y., & Ahmad, M. I. (2016). Dividend policy and corporate governance perspective. Accounting and Finance Research, 5(3), 77-86.
Setia‐Atmaja, L., Tanewski, G. A., & Skully, M. (2009). The role of dividends, debt and board structure in the governance of family controlled firms. Journal of Business Finance & Accounting, 36(7‐8), 863-898.
Shahid, M. S., Gul, F., & Rizwan, M. (2016). Ownership structure, board size, board composition and dividend policy: New evidence from two emerging markets. IBT Journal of Business Studies (JBS), 2(2).
Shahrier, N. A., Ho, J. S. Y., & Gaur, S. S. (2020). Ownership concentration, board characteristics and firm performance among Shariah-compliant companies. Journal of Management and Governance, 24(2), 365-388.
Sharma, A. (2011). Corporate governance and board effectiveness. International Journal of Computational Engineering & Management, 13(1), 116-124.
Shleifer, A., &Vishny, R. W. (1997). A survey of corporate governance. The journal of finance, 52(2), 737-783.
Subramaniam, V. (2018). Family ownership and dividend policy: empirical evidence from Malaysia. International Journal of Business and Management, 13(5), 112-126.
Ullah, N., Waheed, A., & Aman, N. (2022). The nexus between islamic label and firm value: evidence from cross country panel data. The Journal of Asian Finance, Economics and Business, 9(4), 409-417.
Ullah, S., Ahmad, S., Akbar, S., Kodwani, D., &Frecknall‐Hughes, J. (2021). Governance disclosure quality and market valuation of firms in UK and Germany. International Journal of Finance & Economics, 26(4), 5031-5055.
Wei, Z., Wu, S., Li, C., & Chen, W. (2011). Family control, institutional environment and cash dividend policy: Evidence from China. China Journal of Accounting Research, 4(1-2), 29-46.
Yarram, S. R., & Dollery, B. (2015). Corporate governance and financial policies: Influence of board characteristics on the dividend policy of Australian firms. Managerial Finance, 41(3), 267-285.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Hina Zaigham , Yasir Bin Tariq, Sana Zaigham, Muhammad Shakeel
This work is licensed under a Creative Commons Attribution 4.0 International License.
