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PHD Finance Literature Review Sample

Published by at April 27th, 2023 , Revised On February 2, 2024

Non-Financial Disclosure and Dividend Policy

Definition of the non-financial disclosure

The non-financial disclosure, particularly the CSR report, is considered a tool to control managerial behaviour and signal to the market about the managers’ good behaviour (Pérez, 2015).

In the agency theory, the dividend policy and the disclosure of financial and non-financial information are also effective mechanisms in reducing agency problems (Lloyd et al., 1985).

According to the agency theory, the managers should provide relevant information as proof of aligning their interests with those of the shareholders (Healy & Palepu, 2001). The disclosure of non-financial information can be an alternative mechanism to the dividend payout in reducing the information asymmetry and decreasing agency problems (Saeed & Zamir, 2021).

This suggests that the firms that disclose Corporate Social Responsibility (CSR) reports do not have to implement the dividend policy to mitigate the agency problem and, thus, a negative association between the CSR disclosure and the dividend payout. However, Hussainey and Walker (2009), Brockman and Unlu (2011) and Koo et al. (2017) support that the higher quality of disclosure increases the dividend payout as it provides the shareholders with accurate information about the cash flows and the dividend to be paid out.

Corporate Governance and Dividend Policy

Dividend policy has traditionally been one of the most contentious and widely studied aspects of finance, and dividend distribution decisions are an essential component of company policy. The subject of why corporations pay dividends regularly has emerged as one of the essential topics of finance literature for academics (Setiawan et al., 2016). Dividends, according to shareholders, are crucial indicators of a company’s capacity to earn adequate profits. As part of the rapidly expanding literature in corporate finance, the link between corporate governance and dividend policy in emerging economies is an important study area (Sharif & Lai, 2015). Before the 1990s, significant scholars focused on the link between these two topics in the context of industrialised countries. However, when developing markets received a larger share of international stock funds, investors began to pay greater attention to emerging market dividend policy decisions (Elmagrhi et al., 2017).

On the other hand, effective corporate governance is the foundation of the growth of a robust and competitive corporate world, especially in emerging markets (Milosevic, Andrei, and Vishny, 2015). Many studies have investigated the link between corporate governance and dividend policy. Most of these studies conclude that businesses that disperse higher dividend payments and adhere to consistent dividend policies minimise agency conflicts between majority and minority stockholders (Esqueda, 2016). According to Booth and Zhou (2017), if enterprises do not pay dividends to shareholders, managers are more inclined to utilise the assets under their authority for personal gain. Because it removes agency costs, empirical data implies that corporate governance substantially impacts dividend policy. Similarly, according to Sharif and Lai (2015), delivering dividends to shareholders reduces the resources under the company’s control. Moreover, it is also essential to understand the concepts related to corporate governance and dividend policy to get a profound idea of the research area.

Ownership Structure

Ownership is at the heart of the conflict between shareholders/operators. This subject dominated most of the first phase of the corporate governance study and the spirit of the dispute between shareholders and proprietors, which has dominated the more current generation of CSR research (Ducassy & Montandrau, 2015). Unlike other governance components like board independence or labour participation, ownership can be easily compared across nations. A cross-national ownership study essentially compares who owns significant listed enterprises worldwide based on a specified ownership percentage of the major holder. This criterion, along with modifications such as Herfindahl standards and possession of the three to six most prominent investors, has been widely utilised in academic literature and practitioners to compare ownership arrangements systematically (Al-Bassam et al., 2018). Other governance criteria, including board freedom, employee involvement, and stockholder relationship, depend further on the country’s institutional characteristics. For instance, whether twin or single-board structures exist, the position of outside board members is expected to have varied meanings and expectations based on the presence of candidates, exclusive governors, or former business partners (Abdallah & Ismail, 2017). Moreover, reviewing other components of the ownership structure is crucial to understand it fully.

Institutional Ownership

Institutional ownership is the percentage of a company’s shares held by institutional investors. As a consequence, institutional ownership of a business is defined as one less the quantity of its assets held by non-institutions (Crane, Michenaud, and Weston, 2016). If we look at institutional stockholders’ preferences for a specific set of firms, we would need to evaluate why institutional investors’ preferences for those companies are likely stronger than individual investors’ preferences. Institutional investors (such as banks, insurance firms, and pension plans) bear significant fiduciary duties. According to Chang, Kang, and Li (2016), many institutional investors allocate a portion of their portfolios to equities regarded as safe investments.

Similarly, according to Milosevic, Andrei, and Vishny (2015), institutions should avoid companies that do not pay dividends since a “prudent” investment should have a track record of consistent dividend payouts. Since investors in badly managed enterprises are more likely to experience confiscation and other self-dealing issues, they may not get a reasonable rate of return or even fail to maintain their invested cash. As a result, institutional investors’ fiduciary obligations provide a substantial incentive for them to select stocks of firms with excellent governance structures.

Insider Ownership

Insider ownership is computed by dividing the total number of shares owned by insiders (shareholders who own more than 5 percent of the overall company or an executive or governor of the firm) by the number of shares. Insider ownership is highly valued since employees who work for the firm have a substantial interest in its success. It is frequently seen as a hint that individuals in charge will work hard to secure its success or expect its value to grow. Insider ownership can vary due to the execution of options, stock grants, and the purchase or sale of company stock. A company share purchase demonstrates trust in the firm’s future performance by those who know it best. As a result, Net Insider Buying is a valuable signal for investors (Oh, Cha, and Chang, 2017).

According to agency theory, giving stock to managers and directors effectively alleviates agency difficulties by harmonising their interests with the owners’. Because of this incentive alignment, insiders with considerable shareholdings should make decisions that increase long-term shareholder wealth (Oh, Cha, and Chang, 2017). Insider ownership, on the other hand, plays a more nuanced function. While agency theory implies that higher insider ownership enhances shareholders’ wealth by inducing incentive alignment, an opposing viewpoint focuses on the effect of considerable insider ownership on managerial entrenchment. As insider ownership grows, they are more likely to have more extensive control over the business, which may increase the likelihood that influential managers may cement positions for self-serving reasons. If this is the case, insider ownership is predicted to harm CSR (Lopatta et al., 2017).

Blockholder Ownership

Blockholders own at least 5 percent of a business’s regular shares. We are curious how the whole proportion of shares held by such huge shareholders affects the stock market performance of the firms they own. Suppose the exchange price of a company’s stock indicates its worth for minority investors. In that case, the impact of block holder ownership on that stock value reflects the net costs or advantages of big owners from the perspective of a minority investor (Chung, Cho, Ryu, and Ryu, 2019). Moreover, according to management literature, independent observers, such as outside blockholders, can influence CEOs’ actions due to their significant voting power. Because of their substantial ownership, blockholders have the motive and authority to scrutinise CEO actions (Oh, Chang, and Cheng, 2016). It demonstrates that they significantly influence the CSR performance of the organisation.

Foreign Ownership

The foreign ownership of a company or natural resource in a nation by persons not citizens of that country or by corporations headquartered outside that country. In general, foreign ownership happens when multinational firms with operations in many countries make long-term investments in a foreign country, typically through foreign direct investment or takeover. When an international corporation purchases at least half of a firm, the multinational corporation becomes a controlling shareholder, and the corporation acquiring the foreign venture transforms into a subsidiary. Foreign ownership can also occur when a foreign entity acquires a local asset (Desender et al., 2016).

Board of Directors

Board Size

Alabdullah, Ahmed, and Muneerali (2019) found the impact of board size has a solid and favourable link with CSR revelation. Conversely, CEO duality on CSR disclosure reveals a negative association. This study adds to the current knowledge on the roles of board size and CEO duality in CSR activities. Besides, it emphasises the importance of keeping abreast of the latest trends in corporate governance by examining its frameworks about new trends in the financial sector from an religious perspective, as this may positively contribute to corporate supremacy due to the importance of these two disciplines.

Board Independence

Similarly, Ortas, lvarez, and Zubeltzu (2017) discovered that a company’s board’s independence favourably improves CSP. It is because boards with more independent directors are more inclined to commit to stakeholder involvement, environmental protection, and community well-being. Surprisingly, the findings also reveal that the favourable relationship between board independence and CSP is more significant in nations with civil law and when CSP is quantified using self-reporting data. Finally, the intensity of a firm’s board’s independence on CSP changes significantly depending on market dynamics.

Board Diversity

Lastly, Sarhan, Ntim, and AlNajjar (2019) state their multifaceted findings. First, board diversity improves business financial performance as assessed by member gender and ethnicity. Second, in better-governed organisations, the association between board variety and CSR performance is more vital than in poorly-managed businesses. Finally, as the director evaluates gender, race, and nationality, board diversity improves pay-for-performance compassion but not actual executive compensation. Their findings imply that decisions concerning board diversity are driven by more than just moral principles; they are influenced by technical analyses of what diversity may bring to the organisation. The results are vigorous when multiple options of board composition measures, governance practices proxies, company outcomes, and endogeneities are controlled for.


Abdallah, A., & Ismail, A. (2017). Corporate governance practices, ownership structure, and corporate performance in the GCC countries. Journal of International Financial Markets, Institutions and Money,, 46, 98-115.

Alabdullah, T., Ahmed, E., & Muneerali, M. (2019). Effect of board size and duality on corporate social responsibility: what has improved corporate governance in Asia? Journal of Accounting Science, 3(2), 121-135.

Al-Bassam, W., Ntim, C., Opong, K., & Downs, Y. (2018). Corporate boards and ownership structure are antecedents of corporate governance disclosure in publicly listed Saudi Arabian corporations. Business & Society, 57(2), 335-377.

Booth, L., & Zhou, J. (2017). Dividend policy: A selective review of results from around the world. Global Finance Journal, 34, 1-15.

Chang, K., Kang, E., & Li, Y. (2016). Effect of institutional ownership on dividends: An agency-theory-based analysis. Journal of Business Research, 69(7), 2551-2559.

Chung, C., Cho, S., Ryu, D., & Ryu, D. (2019). Institutional blockholders and corporate social responsibility. Asian Business & Management,, 18(3), 143-186.

Crane, A., Michenaud, S., & Weston, J. (2016). The effect of institutional ownership on payout policy: Evidence from index thresholds. The Review of Financial Studies, 29(6), 1377-1408.

Desender, K., Aguilera, R., Lópezpuertas‐Lamy, M., & Crespi, R. (2016). A clash of governance logics: Foreign ownership and board monitoring. Strategic Management Journal, 37(2), 349-369.

Ducassy, I., & Montandrau, S. (2015). Corporate social performance, ownership structure, and corporate governance in France. Research in International Business and Finance, 34, 383-396.

Elmagrhi, M., Ntim, C.G, Crossley, R.M, Malagila, J., . . . Vu, T. (2017). Corporate governance and dividend payout policy in UK listed SMEs: The effects of corporate board characteristics. International Journal of Accounting & Information.

Esqueda, O. (2016). Signaling, corporate governance, and the equilibrium dividend policy. The Quarterly Review of Economics and Finance, 59, 186-199.

Lopatta, K., Jaeschke, R., Canitz, F., & Kaspereit, T. (2017). International evidence on the relationship between insider and bank ownership and CSR performance. Corporate Governance: An International Review, 25(1), 41-57.

Milosevic, D., Andrei, S., & Vishny, R. (2015). A survey of corporate governance. The journal of finance, 52, 737-783.

Oh, W., Cha, J., & Chang, Y. (2017). Does ownership structure matter? The effects of insider and institutional ownership on corporate social responsibility. Journal of Business Ethics, 146(1), 111-124.

Oh, W., Chang, Y., & Cheng, Z. (2016). When CEO career horizon problems matter for corporate social responsibility: The moderating roles of industry-level discretion and blockholder ownership. Journal of Business Ethics, 133(2), 279-291.

Ortas, E., Álvarez, I., & Zubeltzu, E. (2017). Firms’ board independence and corporate social performance: a meta-analysis. Sustainability, 9(6), 1006.

Sarhan, A., Ntim, C., & Al‐Najjar, B. (2019). Board diversity, corporate governance, corporate performance, and executive pay. International Journal of Finance & Economics, 24(2), 761-786.

Setiawan, D., Bandi, B., Phua, L., & Trinugroho, I. (2016). Ownership structure and dividend policy in Indonesia. Journal of Asia Business Studies.

Sharif, S., & Lai, M. (2015). The effects of corporate disclosure practices on firm performance, risk and dividend policy. International Journal of disclosure and Governance, 12(4), 311-326.

Frequently Asked Questions

Non-financial disclosure refers to the reporting of information by organizations that goes beyond financial data, encompassing environmental, social, and governance (ESG) factors, such as sustainability practices, employee welfare, and ethical standards.

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