The role of foreign directors in shaping corporate dividend policies in emerging markets: an empirical application of modified Kanter's framework

Abstract

Purpose: This study investigates the implications of corporate board international diversity by exploring how foreign directors influence corporate dividend policies in the emerging economies of the Gulf Cooperation Council (GCC) region. Design/methodology/approach: This study analyses nonfinancial firms in the GCC region from 2010 to 2020. It uses various dividend policy proxies and measures of international board diversity using the modified Kanter's framework. The modified Kanter framework categorises boards based on the proportion of foreign directors into uniform, skewed, tilted and balanced. The study deploys a wide range of estimation methods, including pooled, random effect, generalised least squares (GLS), generalised method of moments (GMM), two-stage least squares (2SLS), logit and probit regression, to analyse the data while controlling for relevant firm-specific characteristics. Findings: GCC firms exhibit a low representation of foreign directors in their boardrooms. Those firms with foreign directors experience an average dividend payout ratio of 54% higher than those without foreign directors. Likewise, foreign directors enhance the dividend policy for firms in the GCC countries. Besides, the analysis based on the modified Kanter's framework evidence that both the skewed and tilted boards, which have moderate-level foreign directors, have distinctly positive impacts on the degrees of dividend payouts, thus underlining those the efficient dividend decisions, depending on the boards, require a balance in the international diversity. Research limitations/implications: The findings provide valuable insights to policymakers and investors. They highlight the need for governance reform to improve the international diversity of corporate boards in GCC firms. Likewise, investors in the GCC region should rely on such specific governance attributes (i.e. international diversity) to build their prospects regarding corporate dividend policies. Practical implications: GCC firms should organise their boards to include international directors to increase supervision, reduce agency expenses and strengthen external links. Second, GCC firms should foster a welcoming culture to capitalize on foreign experience and implement additional corporate governance measures. Third, policymakers should establish regulations to ensure the presence of foreign directors on corporate boards. This may reduce agency costs and eventually boost investor trust. Finally, as board members become more acquainted with one another, the beneficial implications of optimization for board international diversity grow. This parallels their thinking and decision-making, contributing to developing more sustainable dividend programmes. Social implications: The findings encourage companies to consider broader cultural backgrounds in leadership, which can drive more inclusive and socially responsible policies. This approach promotes the integration of global insights into local business practices, supporting economic and social development by aligning corporate strategies with the diverse needs of communities and stakeholders. Originality/value: Apart from developed economies, the current study is the first evidence of how the board of directors' international diversity could affect the GCC countries' corporate dividend policy. In addition, the current study introduces a relatively novel variable - international diversity - instead of commonly examined diversity variables such as gender diversity.