The effect of managerial ability on a firm’s dividend policy: Evidence from Korea

Abstract

This study examined the effect of managerial ability on a firm’s dividend policy. In addition, this study investigated how the type of manager and their different risk characteristicsrepresented in this study by professional CEOs and owner CEOs-affect the relationship between managerial ability and the firm’s dividend policy. We used 4,593 firm-year observations from the KOSPI for the period 2003-2014, lending our findings considerable power. The results showed that managerial ability was significantly positively associated with a firm’s dividend policy, as proxied by the propensity for dividend payments. Moreover, the positive relationship between managerial ability and dividend payments was particularly pronounced in firms with professional CEOs. These results suggest that professional CEOs strengthen the positive effect of managerial ability on increased dividend payments. © 2019, Allied Business Academies. All rights reserved.