The interrelationship between dividend payout, corporate governance and ownership structure: the case of GCC

Abstract

This thesis is built on three different topics in corporate dividend policy and governance. The first paper, studied in the second chapter, empirically examines the determinants of the dividend policy of nonfinancial nonutility widely traded firms in Gulf Cooperation Countries (GCC) markets. Applying a multivariate logit model, with Fama and Macbeth statistical methodology (1973), to yearly unbalanced panel data for a sample of 199 GCC-listed firms over the period 1996-2011. The findings indicate that dividends-paying firms are older, more lucrative and internally generate funds with various opportunities to expand than those firms that do not payout dividends. In addition, the findings emphasize that the main determinants that help explaining the variation in GCC firms’ dividend policy are profitability, assets growth, firm size, leverage, ownership structure and retained earnings. The results show a significant positive relationship between the propensity of the firm to pay dividends, size of the firm, retained earnings and institutional investors, but a significant negative relationship with growth, block holding and leverage. However, so long as firms grow, their cash balances and historical dividends became immaterial to their tendency to payout dividends. These findings are consistent with the life cycle theory and free cash flow hypothesis of agency cost theory. The second paper, examined in the third chapter, is on the dynamic nature of the linkage between the ownership structure of a firm and its performance as measured through Tobin’s Q ratio. The study consists of 290 nonfinancial nonutility companies incorporated in GCC financial markets, over the period 2008-2013. It uses a dynamic approach (i.e. system dynamic generalized method of moments (SDGMM) estimator) to address the ‘dynamic endogeneity’ issue considered by Wintoki et al. (2012) and Nugyen et al. (2014). The findings emphasise the role of the ‘dynamic nature’ of the relationship in enhancing the firms’ performance. Specifically, concentrated ownership (as a proxy for internal corporate governance mechanisms), do substitute the poor external corporate control by markets of GCC countries. The third paper, examined in the fourth chapter, builds a bridge between the first and the second paper by examining the linkage between the corporate dividend policy and corporate governance. Given the fact that dividends can be substituted with gender-manifold boards in mitigating agency-related costs (Saeed and Sameer, 2017). For this effect, this chapter will investigate the impact of gender diversity on the probability of the firm to pay dividends. The Logit model is estimated to bilateral (treated vs. control firms) data over the period 2006-2016, after employing two statistical methods, namely, (i) the propensity score matching method to address selection biases; and (ii) all independent variables are one-year lagged to mitigate the effect of unobserved omitted variables (Chen et al., 2017). The findings indicate that female directors do influence the decision making of corporate’s board they work for. The inclusion of the female in corporates’ boards has a significant positive impact on dividends payout decision. In addition, using different specifications and identifications did not change the main conclusion approached by applying Logit model.