n Management Dynamics : Journal of the Southern African Institute for Management Scientists - The relationship between corporate governance and dividend payout ratios : a South African study

Volume 24, Issue 2
  • ISSN : 1019-567X



The outcome dividend model suggests that companies exhibiting sound corporate governance compliance typically pay high dividends. In line with international research, this study provides empirical support for the model's relevance in South Africa. Using content analysis, a comprehensive corporate governance score was computed for a sample of companies listed on the Johannesburg Stock Exchange over the period 2002-2010. The mean annual corporate governance scores and dividend payout ratios of the sample companies increased over the research period. Two corporate governance categories, namely board composition and board committees, showed a significant positive relationship with dividend payout ratios. The findings suggest that shareholders should exert more pressure on boards to improve their monitoring of managerial decisions, including those pertaining to the distribution of free cash flow. In addition, board structures that are more unitary and include independent directors from different backgrounds are recommended, as they may further enhance value-adding corporate decision-making in South Africa.

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