EFFECTS OF CORPORATE GOVERNANCE ON DIVIDEND POLICY: AN EVIDENCE FROM FINANCIAL FIRMS LISTED IN THE CHINESE STOCK MARKETS FROM 2011 TO 2016

Abstract

The study applied a panel data linear regression model with random and fixed effects to explain the relationship between corporate governance and dividend policy. The goal of this study is to examine the relationship between corporate governance and dividend policy under the financial sector of Chinese Stock Markets. In this regard, a 6-year sample from 2011 to 2016 was included in this study. In addition, final sample size contained 41 firms with total 246 firm-year observations. According to the Agency Cost Theory and the Asymmetric Information Theory, several aspects of contents are included in this study in terms of 3 dividend policy proxies and 12 corporate governance variables. Findings depicted that supervisory interlock phenomenon, board of supervisors’ ownership, firm size and profitability had significant positive relationship with dividend policy, however, general meeting times and liquidity had significant negative relationship with dividend policy. In addition, board interlock phenomenon had mixed relationships with dividend policy, when distinctive proxies of dividend policy were applied. Therefore, findings interpreted that agency cost and poor governance mechanism existed. Moreover, Chinese financial firms should not only take advantage of interlock resources from interlock directors and supervisors, but also take care of underestimated performance from interlock directors and supervisors due to insufficient efforts on boards. Dividend signals of Chinese financial firms are more likely to be influenced by firm characteristics, so those firms should keep focusing improvements on firm size, profitability and liquidity.