The Effect on Dividend Payouts of Board Independence

In a new paper, we use agency theory to explore the effect of board independence on dividend policy. Over the past few decades, many studies have incorporated several market imperfections into their model of capital markets, such as transaction costs, taxes, and shareholder heterogeneity. We focus on agency costs, which can be mitigated by effective governance mechanisms, such as a more independent board of directors.

In our study, we exploit as a quasi-natural experiment enactment of the Sarbanes-Oxley Act of 2002 (SOX) and the associated exchange listing requirement that public companies have a majority of independent directors.

Dividends serve as … Read more