Nonfamily executives in family firms and dividend payout: evidence from Pakistan

Purpose: The strategic behavior of family firms is not the same when the top management positions are occupied by nonfamily executives. This study aims to examine the dividend payout behavior of family firms in the presence of nonfamily chairperson and nonfamily chief executive officer (CEO). Design/methodology/approach: The authors used 2,926 firm-year observations of nonfinancial firms listed on Pakistan Stock Exchange over the period 2012–2021. To test the hypotheses, the authors used a generalized method of moments estimation and further applied ordinary least squares regression and fixed effects analysis to check for the robustness of results. Findings: Using the lens of social identity theory, the authors found that for the sake of a firm’s reputation and to increase the wealth of family, the family firms are associated with higher dividend payout. However, the presence of nonfamily chairperson and nonfamily CEO weakens this positive relationship due to higher information asymmetry leading to lower dividend payout in such firms. Originality/value: The study adds to the family business literature by highlighting the dividend payout behavior of family firms and providing empirical evidence of distinct behavior of family firms in presence of nonfamily chairperson and nonfamily CEO in context of an emerging economy.