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Dividends and Corporate Governance: Canadian Evidence

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  • Bin Chang
  • Shantanu Dutta

Abstract

This paper examines the role of corporate governance as a determinant of dividend policy with Canadian data over the period 1997-2004. It finds that firms with large board favor higher dividend payments. Further, the ratio of option over cash in CEO’s compensation negatively affects dividend payments. Findings generally show support for the ‘substitution model’ (La Porta et al., 2000). As per the ‘substitution model’, firms with weaker governance characteristics (such as large board size, lower alignment of CEO pay, lower percentage of unrelated director, CEO duality, lower CEO ownership, prevalence of dual-class share structure) are likely to pay higher dividends. It also finds that firms which pay higher dividends are those with less investment opportunities, larger size, and less market risk. These findings are robust even after controlling for endogeneity, external monitoring by equity analysts, joint effect of investment opportunity and corporate governance variables, stock repurchases, or dividend premium.

Suggested Citation

  • Bin Chang & Shantanu Dutta, 2012. "Dividends and Corporate Governance: Canadian Evidence," The IUP Journal of Applied Finance, IUP Publications, vol. 18(4), pages 5-30, October.
    • Handle: RePEc:icf:icfjaf:v:18:y:2012:i:4:p:5-30
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    Citations

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    Cited by:

    1. Carlos P. Maquieira & Christian Espinosa‐Méndez & José T. Arias, 2024. "The impact of environmental, social and governance (ESG) score on dividend payment of large family firms: What is the role of financial constraints? International evidence," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 2311-2332, May.
    2. Sunaina Kanojia & Bunny Singh Bhatia, 2022. "Corporate governance and dividend policy of the US and Indian companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(4), pages 1339-1373, December.
    3. Chintrakarn, Pandej & Jiraporn, Pornsit & Treepongkaruna, Sirimon & Mook Lee, Sang, 2022. "The effect of board independence on dividend payouts: A quasi-natural experiment," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    4. Fidanoski, Filip & Mateska, Vesna & Simeonovski, Kiril, 2013. "Corporate Governance and Bank Performance: Evidence from Macedonia," MPRA Paper 46773, University Library of Munich, Germany, revised Mar 2013.
    5. Hani El Chaarani, 2014. "The Impact of Corporate Governance on the Performance of Lebanese Banks," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(5), pages 35-46.
    6. Mohammed Mahmud Kakanda & Basariah Salim & Sitraselvi a/p Chandren, 2017. "Corporate Governance, Risk Management Disclosure, and Firm Performance: A Theoretical and Empirical Review Perspective," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(9), pages 836-845, September.
    7. Richard Herron, 2022. "Payout policy and the interaction of firm-level and country-level governance," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 1-39, January.
    8. Fakhrul Hasan & Umar Nawaz Kayani & Tonmoy Choudhury, 2023. "Behavioral Risk Preferences and Dividend Changes: Exploring the Linkages with Prospect Theory Through Empirical Analysis," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 24(4), pages 517-535, December.

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