Impact of board structure and ownership structure on corporate dividend policies: evidences from selected non- financial companies listed on the Colombo stock exchange

Abstract

The board structure and ownership structure are the basic components of corporate governance system describing the characteristics of the board of directors and shareholders respectively due to that they are the decision-makers of a corporation. ‘However, they are more involved in dividend decisions making than other corporate decisions siriée shareholders are interested to receive sufficient level of dividends for theirs’ investment while directors use the company money for theirs’ personal benefits throughout minimizing the dividend payment. Thus, the main aim of the study was to investigate the impact of board structure and ownership structure on corporate dividend policies in Sri Lanka. The study was obtained data of listed seventy non-financial companies over the period of 2011 to 2015. The board structure was represented by board size, board independence, CEO duality, and board meeting while institutional ownership, managerial ownership, foreign ownership, and ownership concentration were represented the ownership structure. In addition to that, firm size, profitability (ROE) and previous year’s dividend per share were selected as moderating variables. The dividend per share was used as a proxy of dividend policy. The fixed effect panel regression model was selected for all six regression equations formulated to assess the objectives of the study. The findings revealed that board structure had a significant impact on dividend policies while ownership structure had an insignificant impact on dividend policies of non-financial companies in Sri Lanka. The study was concluded that when the board has independent directors at least two or one-third of total directors and separation of the role of CEO and Chairman, nonfinancial companies in Sri Lanka increase dividend payments with an increase of net earnings and previous year’s dividend payments and vice versa. The findings are useful to policymakers and regulators to reassess and revise corporate governance’s legislations, management body to understand the corporate governance quality status and-investors-to select the best suit stocks in building their portfolio.