Board Financial Expertise and Corporate Payout Policy

Abstract

This study investigates whether financial experts on the board affect firm economic decisions. Motivated by agency theory, I examine the relationship between board financial expertise and corporate payout policy. I find that board financial expertise influences a firm’s dividend policy. Furthermore, I find that the level of agency costs proxied by the percentage of institutional ownership mitigates the relationship between board financial expertise and dividend policies. Several additional analyses support the main findings. The results are important as they demonstrate board financial expertise has effects beyond financial reporting quality by affecting crucial corporate policies.