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Impact of economic policy uncertainty on dividend decision: A moderating role of board financial expertise
Author(s) -
Sarwar Bushra,
Hassan Marria
Publication year - 2021
Publication title -
journal of public affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.221
H-Index - 20
eISSN - 1479-1854
pISSN - 1472-3891
DOI - 10.1002/pa.2613
Subject(s) - dividend policy , dividend , corporate governance , moderation , dividend payout ratio , business , economics , competition (biology) , financial economics , monetary economics , accounting , finance , psychology , social psychology , ecology , biology
Increased competition in the world of emerging financial markets has highlighted the need for more strategic and far‐sighted decisions. Living in a constrained economy investor has always been sensitive about the dividend patterns offered by the firm. Current study focuses on the moderating role of board financial expertise (BFE) on dividend decision of the firm during economic policy uncertainty (EPU), by taking data for 517 nonfinancial listed firms from year 2007–2015. Study presents its empirical model in two forms based on dividend initiation (Di) by nondividend payer firms and dividend termination (Dt) by already dividend paying firms during EPU. Logit model was employed to access the effect of explanatory variables on the probability of terminating the dividend by dividend payers and probability of initiating the dividend by nondividend payers during EPU. The results indicate that firms terminate dividend at the time of uncertainty, but when BFE was introduced as a moderator, previously nonpayer firms initiate dividend and previously payer firms sustain dividends payments at the time of EPU that remains robust with the inclusion of additional CEO level and corporate governance variables. Study further confirms during the EPU, dividend decisions in turn significantly affect firm value as supported by expectancy theory. Results suggest that BFE can be an important signal for keen market participants in deciding future dimensions of a firm.