The impact of board composition on dividend policy for listed companies in Kenya

Abstract

With the emphasis on proper corporate governance new co1porate guidelines have recently been issued regarding board composition. TY1erefore, this study investigated the effect of board composition on dividend policy in listed non-financial firms in Kenya. The study was made up of a sample of 174 observations from 29 non-financial firms from 2013-2018. Dividend policy was divided into dividend decision and dividend payout. Board composition was represented by board independence, gender composition, board size and director ovvnership. The control variables were ROA, leverage and firm size. The relationship between dividend payout and board composition was obtained through a left-censored Tobit regression. The relationship between dividend decision and board composition was obtained through a logit regression. Based on the Tobit regression board size was a variable found to be positively significant. However, in the logit regression an additional variable was found to be significant besides board size, which was director ownership. 1Y1e other firm specific control variables used in the stz~dy also had desired impact on dividend policy. The results suggested that firms that have a larger board pay higher dividend. This evidence was consistent with the fact that the more the directors, the more the diversification benefits leading to a higher return that result into payment of a higher dividend. Hence, having a large board can be thought as a method to mitigate agency conflict because payment of a large dividend reduces the free cash flow.