Conclusion
Rozeff (1982) and Easterbrook (1984) were the first to suggest the corporate governance role of dividends whereby dividend payouts are a means to mitigate Jensen’s (1986) free cash flow problem. Based on recent literature (e.g., Adams and Ferreira, 2009), which suggests that female independent directors increase the board’s monitoring intensity, we hypothesize that boards with (more) female directors are more likely to use high dividend payouts as a corporate governance device. We find evidence in favor of our hypothesis as the fraction of female directors, more precisely the fraction of female independent directors, on the board is positively and significantly related to various measures of dividend payout. This finding is robust to alternative econometric specifications, as well as alternative measures of female board representation. The identification tests, using propensity score matching, the instrumental variable approach and a difference-in-differences analysis (DID), show that the results are not due to endogeneity issues. Further analysis of the heterogeneity of the positive relationship between female directors and dividend payout suggests that the effect is significant only in firms with weak governance and high governance needs. Finally, we find that firms with female directors are more likely to initiate dividends as well as re-initiate dividends following an omission. These findings are consistent with the hypothesis that female directors are more likely to use dividend payouts as a monitoring device than their male counterparts.
