Board independence and dividend distributions in South African listed family firms

Abstract

Orientation: Family firms are important contributors to job creation and economic growth in South Africa.

Research purpose: This study investigated the relationship between dividend distributions and board independence of family firms listed on the Johannesburg Stock Exchange (JSE) from 2006 to 2022.

Motivation for the study: There is no consensus among scholars globally on whether dividends and board independence are substitute monitoring mechanisms. Insight into this topic is important, as JSE-listed family firms are held to the same governance standards as non-family firms.

Research approach/design and method: Demographic data for 719 directors were hand collected from the integrated annual reports of 34 JSE-listed family firms. Two measures of board independence were computed. While the first was based on reported data, the second considered each director’s tenure and association with the founding family. Data on the firms’ dividend payout ratios, propensity to pay dividends and dividend per share ratios were sourced from Bloomberg.

Main findings: Panel regressions revealed that both measures of board independence were positively (albeit not significantly) associated with the family firms’ dividend payout ratios and their propensity to pay dividends. An inverse relationship, however, existed between board independence and dividend per share.

Practical/managerial implications: The findings suggest that board independence of JSE-listed family firms may not alleviate minority shareholder wealth expropriation, as suggested by some scholars, but rather act as a substitute monitoring mechanism for dividend distributions.

Contribution/value-add: This study is the first of its kind in South Africa and draws heavily on the socioemotional wealth theory in its conceptualisation and interpretation of findings.