The Relationship between Audit Mechanisms and Dividend Payout Policy within the Framework of Corporate Governance: The Case of TurkeyMehmet Levent Erdaş, Emel Bachá Sımoes
Do corporate governance mechanisms implemented in firms affect dividend payout policies? What is the role of the audit committee, one of the corporate governance mechanisms, in the dividend payout policies implemented by firms? From this point of view, this study aims to examine the relationship between the audit mechanisms and cash dividend payout policies. We have used data from firms listed in Borsa Istanbul, covering the period 2002-2014, and the paper employs a regression analyses performed by using the System GMM estimation method. As a result of the analysis, the higher the level of independence of the audit committee, the higher the cash dividend payout rate. Another finding obtained in the study was a statistically significant nonlinear relationship between the size of the board of directors and the cash dividend payout ratio. The findings reveal the importance of the audit committee in firms. Therefore, this study reveals that corporate governance practices have an impact on dividend payout decisions of firms listed at the Borsa Istanbul. Based on the results, as a result of the development of audit mechanisms, one of the corporate governance practices, it is understood that efficiency can be achieved in terms of cash dividend payout for investors.
Kurumsal Yönetim Çerçevesinde Denetim Mekanizmaları ve Kar Payı Dağıtım Politikası İlişkisi: Türkiye ÖrneğiMehmet Levent Erdaş, Emel Bachá Sımoes
Firmalarda uygulanan kurumsal yönetim mekanizmaları kar payı dağıtım politikalarını etkiler mi? Firmaların uyguladıkları kar payı dağıtım politikalarında kurumsal yönetim mekanizmalarından biri olan denetim komitesinin rolü nedir? Bu sorulardan hareketle, bu çalışmanın amacı denetim mekanizmaları ile nakit kar payı dağıtım politikası arasındaki ilişkiyi incelemektir. Çalışmanın analizleri, 2002-2014 yılları arasında Borsa İstanbul endeksinde kayıtlı olan firmalara ait veriler ele alınarak gerçekleştirilmiştir. Analiz sürecinde, Sistem GMM tahmin yöntemi kullanılarak regresyon analizleri gerçekleştirilmiştir. Analizler sonucunda, denetim komitesinin bağımsızlık düzeyi arttıkça, firmada nakit kar payı dağıtım oranı artmaktadır. Çalışmada elde edilen bir diğer bulgu ise, yönetim kurulunun büyüklüğü ile nakit kar payı dağıtım oranı arasında istatistiksel açıdan anlamlı doğrusal olmayan bir ilişki elde edilmiştir. Elde edilen bulgular, firmalarda denetim komitesinin önemini ortaya koymaktadır. Dolayısıyla, bu çalışma kurumsal yönetim uygulamalarının Borsa İstanbul endeksinde kayıtlı firmaların kar payı dağıtım kararları üzerinde bir etkisi olduğu sonucunu ortaya koymuştur. Çalışmanın sonuçlarına dayanarak, kurumsal yönetim uygulamalarından olan denetim mekanizmalarının geliştirilmesi sonucunda, yatırımcılar açısından nakit kar payı dağıtımı konusunda etkinliğin sağlanabileceği anlaşılmaktadır.
One of the main issues in the field of financial management is the dividend payout policies of the firms. Recently, the relationship between dividend payout policies and corporate governance practices has an essential place in the financial literature. Do corporate governance mechanisms implemented in firms affect dividend payout policies? What is the role of the audit committee, one of the corporate governance mechanisms, in the dividend payout policies implemented by firms? Based on these questions, the aim of this study is to examine the relationship between audit mechanisms and cash dividend payout policies.
In this study, the relationship between corporate governance practices and dividend payout policies is analysed by considering the theoretical framework and predictions in the finance literature. The structure and independence of the firm’s board of directors is considered to have an impact on the dividend payout policy. The analyses of the study were carried out using the data of the firms listed on the Istanbul Stock Exchange in the period from 2002 to 2014. The dependent variable is the cash dividend payout ratio in the research model. The independent variables consist of the firm’s financial structure, the firm’s corporate governance structure and macroeconomic structure. The variables related to the corporate governance structure of the firm consist of the independence of the audit committee, the ratio of non-executive board members, duality, and the ratio of members in the board of directors who are experts in a certain field, the largest shareholder and board size. The variables related to the financial structure of the firm consist of age, profitability, cash flow margin, investment opportunities and free cash flow rate. As the macroeconomic variable, the growth rate in Gross Domestic Product was taken into consideration.
In the analysis process, regression analyses were performed by using System Generalized Moments Method (GMM) estimation method. The endogeneity problem that may arise from corporate governance practices emerges as an important factor. To overcome this problem, dynamic panel data estimation methods should be applied. In this study, regression estimates were made by using System GMM estimations. This method was developed by Arellano and Bover (1995)/Blundell and Bond (1998). Instrumental variables should be used precisely and accurately to ensure that the findings obtained from the System GMM estimates are valid and reliable. For this purpose, the Arellano/Bond autocorrelation test statistics were used. The Sargan test statistic was used to determine the validity of the instrumental variables. While examining whether the regression analyses were consistent and valid, the multicollinearity between variables was evaluated by using Variance Inflation Factors (VIF). The Breusch-Pagan/Cook-weisberg test was used to determine the heteroskedasticity problem.
The results showed that the cash dividend payout rate of the firms was positively affected by the cash dividend payout rate in the previous period. An important finding has been reached, which shows that as the independence of the audit committee increases, the cash dividend distribution ratio increases. It has been determined that the cash dividend payout ratio in the firms is positively affected by the increase in the ratio of non-executive board members in the board of directors, the increase in the age of the firm and the growth in the economy in which it operates. On the other hand, the cash dividend payout ratio is negatively affected by the duality, the increase in the share of members with special expertise and the increase in the ownership ratio of the big shareholder. Another important finding in the study is that the relationship between the scale of the board of directors and the cash dividend distribution is not linear. When the factors specific to the firm are analysed, it is determined that the cash dividend payout ratio decreases as the cash flow margin increases.
As a result of this study, corporate governance practices that may affect the cash dividend distribution ratio were examined by focusing on the independence levels of the board members and committees. The findings show that corporate governance practices have very important results for firms. In particular, it is important to apply and disseminate corporate governance principles in order for firms to be able to withstand global crises and survive in highly competitive conditions. This situation is especially important for the national economy. In this context, compliance with corporate governance standards is an important factor that should not be neglected. The results of this study can be considered by financial managers and policymakers in order to make appropriate dividend decisions.