Does Corporate Board Diversity Affect Corporate Payout Policy?

Abstract

We find that firms with gender/racial diversity in their boards are more likely to pay larger dividends than firms with non-diverse boards. Our results suggest that board diversity has a significant impact on dividend payout policy. The impact of board diversity on dividend payout policy is particularly conspicuous for firms with potentially greater agency problems of free cash flow, suggesting that a diverse board helps to mitigate the free cash flow problem. Our findings are consistent with the argument that board diversity enhances the monitoring function of directors and shareholder–manager conflict resolution for the benefit of shareholders.