Free Cash Flow as a Moderator Between Board Characteristics and Dividend Policy: Evidence from Jordan’s Industrial Sector
DOI:
https://doi.org/10.47654/v30y2026i3p63-88Keywords:
Corporate Governance, Dividend Policy, Board Characteristics, Free Cash Flow, JordanAbstract
Purpose: This study investigates the relationship between board characteristics and dividend policy in the context of emerging markets, where agency problems and governance effectiveness remain critical concerns. Although prior research has investigated the direct effects of board attributes on dividend policy, the moderating influence of firms’ internal financial resources, notably free cash flow, remains underexplored.
Design/Methodology/Approach: Using panel data from industrial firms listed on the Amman Stock Exchange over the period 2016–2020, this study employs panel regression techniques to examine the effects of board independence, board size, and board meeting frequency on dividend payouts, while explicitly modeling free cash flow as a moderating variable.
Findings: The empirical findings indicate that board independence and board size are positively and significantly associated with dividend payouts, whereas board meeting frequency does not exhibit a significant direct effect. Furthermore, interaction analysis indicates that higher free cash flow significantly amplifies the effect of board independence and size on dividend policy, implying that governance mechanisms are more effective in guiding dividend decisions under greater internal liquidity.
By incorporating free cash flow as a moderating factor, this study offers new insights into the mixed evidence reported in the corporate governance and dividend policy literature. These findings enhance understanding of the interplay between internal governance mechanisms and financial conditions in mitigating agency conflicts, especially within emerging market contexts.
Practical Implications: The findings offer practical implications for policymakers, investors, and corporate directors. The study recommends enhanced transparency in free cash flow reporting and improved governance guidelines to strengthen dividend decision-making in developing economies.
Originality/Value: This research introduces an interaction-based framework that evaluates how board characteristics and free cash flow jointly influence dividend decisions. This originality provides a new explanation for why previous studies have reported inconsistent findings regarding the impact of board structure on dividend policy. This study is directly related to Decision Sciences because it examines how corporate boards and managers make strategic financial decisions under varying levels of free cash flow, highlighting the governance mechanisms that shape dividend decision-making in emerging markets.
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Copyright (c) 2026 Mahmoud Nassar (Corresponding Author); Yousef Abu Siam, Mohammad Haroun Sharairi, Khalil Nimer (Author)
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