Ownership structure, board characteristics and dividend policy: evidence from Turkey

• DOI: https://doi.org/10.1108/CG-04-2021-0129
• Published date: 17 September 2021
• Date: 17 September 2021
• Pages: 340-363
• Subject Matter: Strategy,Corporate governance
• Author: Ajab Khan

Ownership structure, board characteristics

and dividend policy: evidence from Turkey

Ajab Khan

Abstract

Purpose –This study aimsto investigate the impact of ownership structureand board characteristics on

dividendpolicy in the listed Turkish firms between 2013 and 2019.

Design/methodology/approach –This study usesthe probability of paying dividends, dividendpayout

ratio and dividend yield measures. The suitable regression procedures (logit, probit and Tobit models)

are used to examine the research hypotheses by focusing on a panel data set drawn from the Borsa

Istanbul(BIST) 100 index, excluding financialand utility firms.

Findings –The empirical findingsindicate that institutional and concentratedownerships are significant

and positively associatedwith dividend payouts, whereas family ownership doesnot influence dividend

policy. On theother end, board size is positive, while chief executiveofficer duality is negatively relatedto

dividend policy. Additionally, the female directors and board independence are insignificant in

influencingfirms to pay high dividends.

Research limitations/implications –Future researchers can validate this paper’s findings by

considering the stockdividends as well. Additionally, future researchersmay investigate the relationship

between these constructs by extending the sample size of firms listed on BIST or in other emerging

markets.

Practical implications –This study’s findings may serve policymakers, regulators, investors and

academic researchersto get valuable guidance from relevant literature. TheTurkish firms may improve

dividendpolicy by implementing the regulatory frameworkintroduced by the Capital Markets Law in 2012

for effective monitoring and protecting the minority shareholders’ rights. The controlling shareholders

may alleviate principal-principal conflicts by ensuringthe independence of directors and increasing the

numberof female directors according to the criticalmass of at least 30% of board members.

Originality/value –This study contributes to agency theory and signaling theory by considering

ownershipstructure and board attributesamong Turkish firms related to dividendpayments.

Keywords Board characteristics, Borsa Istanbul, Dividend payout, Ownership structure

Paper type Research paper

1. Introduction

Historically, dividend studies essentially focused on developed economies while there is

scarce literature on emerging markets context. The dividend-paying dynamics in emerging

markets are widely different from developed economies due to ownership concentration,

inadequate corporate governance and the legal environment protecting minority

shareholders. Emerging markets hold similarities based on inadequate institutional

protection of minority shareholders, leading to principal-principal conflicts between

controlling and minority shareholders due to ownership concentration (Young et al.,2008).

The controlling shareholders typically expropriate value from the minority shareholders by

influencing the board-level decisions (Su et al., 2008). Such conflicts imply mitigating the

dividend payouts in emerging markets (La Porta et al.,2000). In this connection, an

effective board composition influencing decision-making, including dividend payouts

(Hermalin and Weisbach, 2003), is warranted to resolve these conflicts. Besides, emerging

markets are different from developed markets due to various factors such as social and

Ajab Khan is based at the

Department of Business

Administration, Ibn Haldun

University, Istanbul, Turkey.

Received 9 January 2021

Revised 9 June 2021

15 August 2021

18 August 2021

Accepted 26 August 2021

PAGE 340 jCORPORATE GOVERNANCE jVOL. 22 NO. 2 2022, pp. 340-363, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-04-2021-0129

political instability, inadequate laws and regulations, absence of satisfactory disclosure,

different ownership structure and ineffective corporate governance measures (Glen et al.,

1995;La Porta et al., 2000;Faccio et al.,2001;Aivazian et al.,2003;Araratand U 

gur, 2003).

According to Baker et al. (2008), financial economists are typically trying to develop a

universal model based on a “one-size-fits-all” approachwhich cannot be equally applicable

in developed and emerging markets contexts due to numerous factors such as different

corporate governance measures,firm attributes and legal environments.

This study offers a novel understanding of ownership structureand board characteristics on

dividend payouts in Turkish firms. We believe that Turkey offers an interesting research

setting for such analysis due to several reasons. First, the Turkish market is heavily

ownership-concentratedand typically controlled by families and large institutional investors,

which manipulate the board’s decision in their favor (Yildirim-Oktem and U

¨sdiken, 2010).

Second, according to Hofstede’s typology (Kabasakal and Dastmalchian, 2001), high

collectivism distinguishes the Turkish culture from developed countries, suggesting that

board characteristics positively impact dividend payouts. Third, despite the relatively

modern market infrastructure and strong disclosure standards, Turkish firms face

inaccessibility to finance due to an underdeveloped equity market compared to developed

markets (World Bank Group, 2014).

The impact of ownership structure and board characteristics on dividend policy is sparsely

investigated by assuming one blend of factors or another (Yoshikawa and Rasheed, 2010;

Wei et al.,2011;Gonz

alez et al.,2014;Al-Najjar and Kilincarslan, 2016;Subramaniam,

2018;Sener and Selcuk, 2019). However, a thorough investigation by using both the

ownership structure and board characteristics is relatively unexplored. Additionally, it is

especially pivotal to check the influence of ownership structure and board characteristics

on dividend policy after the Capital Markets Board (CMB) amendments of the regulatory

framework for effective monitoring and protecting shareholder rights through its

communique

´s in the Turkish Commercial Code (TCC)and the Capital Markets Law (CML) in

2012 (Glass Lewis, 2020). As dividend policy in terms of the given parameters is

inconclusive in the given studies; therefore, this study extends the literature by adding

valuable insights.

Hence, the findings of this study contribute to the dividend literature in several ways. First,

this study investigates the impact of ownership structure and board characteristics on

dividend policy in the Turkish capital market after Turkey implemented comprehensive

corporate governance measures introduced in the TCC and the CML in 2012 (Glass Lewis,

2020) for further improving protecting the minority shareholders. This study is helpful to

know the efficacy of such regulatory changes in the Turkish context. Second, this study

primarily focused on ownership structure (family ownership, institutional ownership and

concentrated ownership) for influencing the dividend policy. Third, given the ownership

structure, the board characteristics, such as female directors on the board, the board

members’ independence and the chief executive officer (CEO) duality, imply different

dynamics in performing their roles, probably due to their link with or influence from

controlling families. Hence, investigating such board characteristics along with ownership

structure is warranted to understandthe modalities of dividend policy in the Turkish market.

Fourth, this study’s results may be used to benchmark other developing and emerging

markets trying to bring reformations in corporate governance measures.

2. The Turkish institutional setting

Turkish firms give relativelyless protection to minority shareholders and creditorsbecause it

is a French-origin civil law country compared to common law countries (La Porta et al.,

2000). The firms are predominantly owned by families with a high shareholding, which gives

them high control (Kula and Tatoglu, 2006;Oba et al., 2010;OECD, 2013). Additionally,

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