Board Characteristics and Dividend Policy: Australian Evidence

The present study makes an important contribution to the growing literature on international corporate governance by finding a significant relationship between board independence and average dividend payout of a sample of 413 Australian firms for the period 2004 to 2009. This finding implies that firms with highly independent boards contribute to corporate governance by allowing dividends to play significant disciplinary and monitoring roles. These findings are consistent with free cash flow hypothesis (Jensen, 1986) and agency cost view of Easterbrook (1984). The study also finds that board size (median of seven directors) and board independence (median of 75 per cent) in the study period of 2004 to 2009 compare remarkably similar to the findings for the year 1996 by Kiel and Nicholson (2003). However chairman-CEO duality has considerably reduced to 5.2 per cent in 2004-2009 period compared to 23 per cent in 1996. Board size and duality have no significant influence on the dividend payout of Australian firms when controlled for other variables identified in prior literature, however, board independence continue to exert significant positive influence on average dividend payout.