The Effect of Corporate Governance on Mutual Fund Dividend Policy: Evidence from Egypt

Abstract

The purpose of this paper is to investigate whether mutual fund governance has an effect on fund dividend policy in the Egyptian Stock Market. Using a final sample of 27 mutual funds between 2004 and 2013, this paper applies a Structural Equation Modelling technique to solve the potential endogeneity problem between internal governance measures and dividend policy. The empirical evidence shows a positive correlation between governance quality and dividend policy measured by dividend yield. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic manager. No significant association was found between board independency and dividend policy, because firms with higher number of independent directors are more restricted to pay higher dividends. This study provides additional evidence of the applicability of the Outcome Model in the emerging market of Egypt. It was found that the payment of higher dividend was considered necessary to attract capital during this transitional period. Keywords: Corporate Governance, Dividend Policy, Mutual Fund, Endogeneity. JEL Classification G34, G35, G23, C3