Investigating the link between board independence and dividend distributions in South Africa

Abstract

Purpose: As shareholder-elected monitors, independent non-executive directors (INEDs) should ensure that managers do not retain earnings to promote their own interests. The relationship between board independence and dividend distributions was hence investigated for selected companies listed on the Johannesburg Stock Exchange (JSE). The country offers a well-developed corporate governance framework to listed companies. Design/methodology/approach: Data on the considered companies’ dividend payout ratios (DPRs), board independence and six control variables were obtained from Bloomberg for the period 2007–2021. The significance of the observed trends in these variables was considered by conducting analysis of variance (ANOVA) and Fisher’s least significant difference (LSD) tests. The hypothesised relationship was assessed using a mixed-model regression. Findings/results: The results are in line with prior research showing that dividends are often omitted or reduced during and after crisis periods, that is, the global financial crisis (2008/2009) and the coronavirus disease 2019 (COVID-19) pandemic (2020/2021). A negative but statistically insignificant relationship was reported between DPR and board independence. Practical implications: Although board independence was not significantly related to dividend distributions for the sampled companies, INEDs still perform an important monitoring role. Shareholders are thus encouraged to play a more active role in the election of these directors. Originality/value: This study extends and refines previous research in South Africa and reveals new insights regarding board independence and dividend distributions during three King regimes and distribution-related regulatory changes.

Keywords

• board independence
• independent non-executive directors
• king iv
• dividend payers
• dividend payout ratios
• over-retention of earnings
• resource dependence theory
• agency theory