Corporate governance and dividend payout.

Abstract

This paper aims to analyze the relationship between corporate governance and dividend payout. Apart from a basket of 14 governance variables, 6 other mutually exclusive variables have been added to the study. These 6 additional variables not established in existing corporate governance scorecards consist the involvement of big four accounting firms, proportion of directors sitting on multiple boards, proportion of females on board, the education level of the board, firm leverage and the average age of the board. Given Singapore and Hong Kong’s extensive economic similarities, comparing these two Asian economic powerhouses will add more value to the study. This paper will be useful for both firm owners as well as general investors as they will be more aware of governance variables significant to dividend payout. The statistical analyses are performed on a sample size of 9,600 observations obtained from 96 firms listed on the Singapore Stock Exchange and a sample size of 2,356 observations taken from 62 firms listed on the Hong Kong Stock Exchange. These observations encompass a 5-year period from 2003 – 2007 and a 2-year period from 2006 – 2007 for Singapore and Hong Kong respectively. Results of the statistical analyses confirmed our main hypothesis that corporate governance is inversely related to dividend payout. Regression analyses of the Singapore data further revealed that number of meetings, attendance at each meeting, proportion of independent non-executive directors, directors' shareholdings and board education are significant to dividend payout. The newly introduced variables like the involvement of the big four accounting firms, proportion of directions sitting on multiple boards and the education level of the board also seemed to have a measurable effect on corporate governance in both Singapore and Hong Kong firms. In conclusion, our research findings are generally consistent with our team’s hypotheses.