Board of Director Composition, Shareholder Wealth, and Dividend Policy

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Abstract
Advocates of board of director reform suggest that outsider dominated boards take a more active role in promoting the financial performance of the firm. Although a number of studies have examined the board composition/financial performance relationship, this study is unique in three respects. It adds risk-adjusted market return as a performance variable in board composition/financial performance studies and finds a direct relationship between outside directors representation on the board and corporate financial performance. Finally, the analysis is extended to incorporate the dividend decision of the firm. The findings provide evidence that board composition affects dividend policy.