Role of Corporate Governance in Determining Dividend Policy: Panel Evidence from India

The present study investigated the nexus between the structure of corporate governance and dividend policy using independent directors and board size as proxy variables for corporate governance for a total of 360 Indian non-financial and non-utility companies included in BSE 500 index during 2012-2016. The study also employed the firm-level control variables such as firm size, beta, profitability, and liquidity to control for firm specific characteristics. Using Tobit and Logit models, the study found that non-executive directors significantly and negatively determined the dividend payout ratio whereas the board size significantly and positively affected the dividend payout ratio of the selected firms. The other firm specific control variables used in the study also had the expected and desired influence on the dividend payout ratio in both the estimated models. Overall, the findings suggest that dividends could be a substitute for corporate governance for monitoring the agency problem.