Does Independent Directors Influence Dividend Pay-out?

Abstract

Dividend is one of the major factors considered by investors /shareholders in their investment decision, however, dividend decision being a sole responsibility of the board would be influenced by the nature of independence of the board. This study aims to evaluate how the independence of bank boards affects dividend payout decisions with reference to listed deposit money banks in Nigeria. The study extracted secondary data from annual reports and accounts of listed DMBs for a period of 10 years (2012 – 2021) relating to the dependent (Dividend payout ratio) and explanatory variable (outside directors). We analysed the data using descriptive statistics, correlation and GLS regression analyses. The result indicates that independent directors adversely influence dividend pay-out out to shareholders by -81%. This means that outside directors on banks board are strongly oppose to paying dividend supporting the substitution hypothesis, which posits that dividends substitute for independent directors on the board. This evidence implies that shareholders of DMBs that are more interested in dividend income can influence the chances of dividend payment by lowering the number of independent directors in the board. Hence, these findings underscore the need for policy revisions regarding board composition to balance director independence with shareholder dividend preferences.