Agency Problems and Dividend Policies around the World

This paper outlines and tests two agency models of dividends. According to the "outcome model," dividends are paid because minority shareholders pressure corporate insiders to disgorge cash. According to the "substitute model," insiders interested in issuing equity in the future pay dividends to establish a reputation for decent treatment of minority shareholders. The first model predicts that stronger minority shareholder rights should be associated with higher dividend payouts; the second model predicts the opposite. Tests on a cross section of 4,000 companies from 33 countries with different levels of minority shareholder rights support the outcome agency model of dividends.     

Reputation as a governance mechanism? Evidence from payout policy of insider‐controlled firms in Taiwan

This paper examines the effect of entrenched insiders’ reputational concerns on corporate payout policy in Taiwan, a market in which typical public firms are controlled by a single dominant shareholder who is subject to weak takeover threats and has incentives and abilities to extract private benefits by oppressing minority equity holders. The reputation‐building hypothesis predicts that firms with higher expropriation risk by a controlling shareholder make more payouts to credibly commit not to expropriate minority shareholders, thereby establishing reputation in the capital market for risk diversification and low‐cost external financing. I show that corporate payout intensity is significantly and positively correlated with measures related to the moral hazard of dominant owners. The reputation effect manifests in firms that most value it; the interaction analyses indicate that younger, smaller, or growth firms with higher controlling shareholder expropriation risk pay more cash dividends. Moreover, firms are less likely to omit dividends and more likely to resume dividends when their controlling shareholders are more entrenched. Finally, I show that the value of cash dividends is higher for firms with higher controlling shareholder expropriation risk and that expected dividend increases in these firms are value enhancing.     

Dividend taxation and the ownership structure of private firms

This paper examines the effect of dividend taxation on the ownership structure of private firms. I exploit a German dividend tax increase that only affects corporate shareholders owning a minority stake. Using data on private German firms and their shareholders, I find that corporate shareholders reduce their minority stakes in firms after the dividend tax reform. This result is in line with the notion that, because minority shareholders do not have sufficient decision-making power to influence the payout policy, they can only react to a dividend tax increase by selling their shares. This effect is larger when the affected minority shareholders face high dividend tax costs. However, I find a smaller effect when the benefits of the minority stakes are highly relevant for the firm and the affected shareholders, suggesting that non-tax factors mute the response to dividend taxes. In addition, I find that the largest shareholder of the firm buys the minority stake, resulting in greater ownership concentration. These findings extend the prior literature that finds no effect of dividend taxes on the ownership structure of private firms.     

Minority Protection and Dividend Policy in Finland

This paper highlights some theoretical arguments and empirical results on whether legal‐based minority protection affects corporate cash dividends in Finland. The Company Act in Finland states that shareholders having one tenth of all shares can demand a so‐called minority dividend, which is half of the profit of the fiscal year, yet not more than 8% of the equity. Minority dividend, as in Finland, is rarely used in EU countries. I find, that minority protection is a better influence over managerial control than controlling shareholders having absolute voting power. When there is no controlling shareholder and coalition costs are lowest, minority protection in Finland is better than minority protection in mandatory dividend countries. Combining strong shareholder rights (as in the USA) and minority dividend (as in Finland) could decrease agency costs both vertically and horizontally.     

关于股改前后现金股利影响因素的实证研究

对股改前后影响现金股利水平的公司治理变量研究表明,虽然股改矫正了现金股利与增长机会之间的关系,使股改后当存在增长机会时,公司会减少现金股利的发放,但是我国上市公司的现金股利尚未呈现出全流通资本市场上作为降低控股股东与中小股东代理成本工具的现金股利政策应有的特征,突出表现在股改前后影响上市公司现金股利支付水平的股权结构变量并未发生变化,股改前后都存在股权集中度、第一大股东持股比例及第二到第十大股东持股比例与每股现金股利呈显著正相关、而流通(非限售)股比例与每股现金股利呈显著负相关的关系。     

Can online annual general meetings increase shareholders’ participation in corporate governance?

We find that annual shareholder meetings conducted online can significantly increase the participation of shareholders, especially minority shareholders. This finding is more evident when the cost of physically attending the annual meeting is higher and when the firm's ownership is more dispersed. We further document significant positive stock returns when firms initiate annual online meetings. We also find that such online meetings help improve corporate governance. Overall, we provide evidence that online shareholder meetings provide shareholders a cost-effective way to participate in governance issues.     

Shareholder composition,share turnover,and returns in volatile markets: The case of international REITs

The shareholder composition of listed property companies has changed from the fragmented, retail ownership, to more concentrated, institutional ownership over the past decade. In this paper, we first document significant variation in the composition of the shareholder base across the world's five largest listed property markets. We then examine the relation between the composition of the shareholder base and stock market performance and share turnover during the turbulent trading days of 2008 and 2009. By directly relating the shareholder base of firms to excess returns and turnover on these volatile days, we are able to isolate the importance of shareholder composition during periods when trading behavior is most likely to vary across different types of shareholders. We find that both large block holdings and high levels of institutional ownership decrease trading volumes and moderate stock returns; however, the effects largely occur when stock prices move sharply downward. Moreover, these effects are strongest when ownership concentration and institutional ownership exceed 25 percent. We also find that the disaggregation of institutional investors into distinct categories (banks, pension funds, advisors, etc.) increases our understanding of stock trading and share price dynamics of listed property companies.     

Ownership structure and dividend policy: Evidence from Italian firms

Abstract

This paper reports on empirical investigations into the relationship between dividend policy and ownership structure of firms, using a sample of 139 listed Italian companies. Ownership structure in Italy is highly concentrated and hence the relevant agency problem to analyse seems to be the one that arises from the conflicting interests of large shareholders and minority shareholders. This paper therefore attempts to test the rent extraction hypothesis by relating the firm’s dividend payout ratio to various ownership variables, which measure the degree of concentration in terms of the voting rights of large shareholders. The hypothesis that other non-controlling large shareholders may have incentives to monitor the largest shareholder is also tested. The results of the empirical analysis reveal that firms make lower dividend payouts as the voting rights of the largest shareholder increase. Results also suggest that the presence of agreements among large shareholders might explain the limited monitoring power of other ‘strong’ non-controlling shareholders.     

Do investors want politically connected independent directors? Evidence from their forced resignations in China

Prior studies document that politically connected independent directors (“political IDs”) bring both benefits (e.g., easier access to long-term debt financing) and costs to firms (e.g., greater minority shareholder expropriations), but the observed relationship may be spurious because board composition is endogenously determined. Moreover, no direct evidence shows how minority shareholders value these political IDs. Using an exogenous shock that forces firms to lose their political IDs, we investigate the value of political IDs for Chinese listed companies. Specifically, using a difference-in-difference methodology, we find that the mandated departures of political IDs lead to reduced long-term debt financing and decreased government subsidies for nonstate-owned listed companies. Nonstate-owned listed companies that experience the sudden loss of political IDs adapt to the shock and improve their minority shareholder protections by engaging in fewer self-dealing activities and by enhancing investment efficiency. Although minority shareholders experience greater levels of expropriation in the presence of political IDs, they react negatively to the forced departure of political IDs. This evidence suggests that minority shareholders weigh the loss of political ties over the potential gain of corporate governance improvement. Our study provides direct evidence on how political IDs affect firms' strategic decisions. The study also sheds light on political IDs' roles in facilitating rent-seeking by controlling shareholders.     

It's Showtime: Do Managers Report Better News Before Annual Shareholder Meetings?

Annual shareholder meetings provide an opportunity for shareholders to express their concerns with corporate performance, pressuring managers to demonstrate good performance. We show that managers respond to the shareholder pressure by reporting positive corporate news before the annual shareholder meetings. Specifically, we find significantly positive average cumulative abnormal returns (CARs) during the 40 days before the annual meeting date. The premeeting returns are significantly higher when shareholder discontent with managerial performance is likely to be stronger. The decile of companies with the worst past stock price performance exhibits average CARs of 3.4% and buy‐and‐hold returns of 7.0% during the 40‐day premeeting period. Companies with poor past performance exhibit even higher premeeting returns when shareholder pressure on management is greater, such as when institutional ownership is high, when CEO compensation is high, and when shareholders submit proxy proposals on corporate governance. We complement the evidence based on CARs by showing how managers of poorly performing firms manage the timing and content of earnings announcements and management forecast announcements before the annual shareholder meetings. Overall, the results suggest that managers attempt to influence shareholders before annual shareholder meetings through positive news.     

股权分置、资金侵占与上市公司现金股利政策

上市公司控股股东是否直接或以现金股利方式间接侵占公司资金一直是困绕学术界和实务界的共同性问题。与以往的研究不同,本文发现现金股利和资金侵占同是大股东实现其股权价值最大化的手段,二者具有可替代性,协整检验的结果也表明二者不是弱外生变量。本文通过联立方程模型将上市公司现金股利政策与资金侵占结合起来考虑,发现国有控股的公司发放的现金股利水平在前一阶段最高;国有法人控股的公司,现金股利发放的水平在后两阶段最高,但资金被侵占的程度最低;社会法人控股股东对现金股利的偏好与国有法人控股股东无异,但其控股的公司资金被侵占的程度最为严重;国有股控股的公司,其资金被侵占的程度介于二者之间。本文通过对公司股利政策的连续考察发现随着证监会推进上市公司改革的逐步深入,非流通股控股股东减少了对上市公司资金的直接侵占,但现金股利形式却变得越来越普遍。     

Does strengthening large shareholders’ cash flow rights reduce their expropriation motivation? Evidence from China’s dividend tax reforms

According to classic corporate governance theory, strengthening large shareholders’ cash flow rights without changing their control rights should reduce expropriation incentives by better aligning their interests with those of minority shareholders. However, due to the weaker investor protections and low dividend payouts of listed firms in China, large shareholders typically extract private benefits instead of seeking shared benefits through dividends. They therefore care more about control rights than cash flow rights. An empirical study using the exogenous changes of two rounds of dividend tax reductions reveals that strengthening the largest shareholders’ cash flow rights leaves their expropriation activities unchanged and firm value does not increase. However, when other shareholders supervise the largest shareholder, expropriation activities ease significantly.     

Financial reporting quality and dividend policy: New evidence from an international level

This study examines the link between financial reporting quality and dividend payout across 76 countries. We find that financial reporting quality increases dividend payout after controlling for firm and country specifics. We also investigate different channels that moderate the relation between financial reporting quality and dividend payout. We find that the positive association between high-quality financial reporting and dividend payout is more pronounced when firms have free cash flow problems, face severe information asymmetry, and are located in countries with weaker minority shareholder protection rights. Interestingly, we find evidence that high reporting quality enhances firms' payment of dividend even when these firms already overpaying their shareholders. However, the relation becomes weaker when firms overpass the optimal level of dividend payout. The findings remain consistent after several robustness checks, thus highlighting the effectiveness of more transparent disclosure of financial information in reducing information asymmetry related to firms' internal agency costs and their relationships with external parties.     

Dividend payouts and catering to demands: Evidence from a dividend tax reform

Utilizing the 2012 dividend tax reform in China, this paper examines how firms make dividend payout decisions that cater to the controlling shareholders' demand, especially when controlling shareholders and outside minority shareholders have different dividend preferences. We find that firms increase dividend payouts when controlling shareholders demand higher dividends after the dividend tax reform. In particular, firms pay higher dividends when facing increased demand from controlling shareholders than when the demand is from minority investors. In addition, we find that firms that increase dividend payments due to the controlling shareholders' demand subsequently have more debt financing and poorer firm performance, suggesting that catering to the demands from controlling shareholders is subject to the Type II agency problem.     

Going Public without Governance: Managerial Reputation Effects

This paper addresses the agency problem between controlling shareholders and minority shareholders. This problem is common among public firms in many countries where the legal system does not effectively protect minority shareholders against oppression by controlling shareholders. We show that even without any explicit corporate governance mechanisms protecting minority shareholders, controlling shareholders can implicitly commit not to expropriate them. Stock prices of such companies are significantly higher and firms are more likely go public because of this reputation effect. Moreover, insiders divest shares gradually over time, at a rate that is negatively related to the degree of moral hazard.     

Session III: Securities Law in Twenty‐First Century America: A Conversation with SEC Commissioner Robert Jackson

SEC Commissioner Robert Jackson comments on three major issues the Commission has been investigating: (1) the concentration of ownership among American stock exchanges; (2) the extent of common ownership of, and potential for undue influence over, U.S. corporations by large institutional shareholders; and (3) the role of corporate boards in promoting and protecting stakeholder interests as well as shareholder interests. In the first of the three areas, Jackson argues that the ownership of 12 of the 13 U.S. stock exchanges by just three financial conglomerates suggests a competitiveness problem— one that, despite the significant reductions in trading costs during the last 15 years, should receive further investigation. To the concerns raised by the common and increasingly concentrated ownership of U.S. public companies by institutional shareholders, the Commissioner's main response is to note that whatever culpability corporate America is forced to assume for our large and growing environmental and social problems must be shared with the largest U.S. institutional shareholders, whose collective resources and influence confer a responsibility to help guide companies when responding to such problems. Finally, on the issue of stakeholder theory and ESG, Jackson insists that asking corporate boards to put the interests of all stakeholders on a par with their shareholders’ when making strategic business decisions would be a mistake. Besides creating a major accountability problem, the adoption of stakeholder theory in place of “the clear, single‐minded objective function of increasing long‐run shareholder value” would deprive boards of their principal guide “when making the difficult tradeoffs among stakeholders that effective oversight and management of public companies require.”     

Unintended Consequences of Changing Accounting Standards: The Case of Fair Value Accounting and Mandatory Dividends

A growing body of literature investigates the interaction of changes in accounting standards with institutions such as investor protection laws and corporate governance mechanisms. We examine the unintended consequences of fair value accounting in determining mandated preferred dividends. We study the case of Russian energy conglomerate UES, which had a good corporate governance track record and a consistent dividend history. Following its adoption of fair value accounting, UES reported the highest quarterly profit in world corporate history, but it subsequently omitted dividends for all its shareholders. The case analysis suggests that the transitory nature of fair value adjustments and the interaction with the investment policy were important considerations in justifying the dividend omission. The reduction in preferred dividends was not offset by any capital gains, and led to a wealth transfer from preferred to ordinary shareholders. Thus, requiring the use of fair value accounting when determining the dividend distribution base can lead to unintended consequences and increase agency costs for minority shareholders.     

Tax reform and payout policy: Do shareholder clienteles or payout policy adjust?

Changes in taxation of corporate dividends offer excellent opportunities to study dividend clientele effects. We explore payout policies and ownership structures around a major tax reform that took place in Finland in 2004. Consistent with dividend clienteles affecting firms' dividend policy decisions, we find that Finnish firms altered their dividend policies based on the changed tax incentives of their largest shareholders. While firms adjust their payout policies, our results also indicate that ownership structures of Finnish firms also changed around the 2004 reform, consistent with shareholder clienteles adjusting to the new tax system.     

金字塔股权结构、股权制衡与终极股东侵占

上市公司终极股东行为深受金字塔股权结构形态和内部权力配置及结构的影响。我国上市公司的经验数据表明上市公司终极股东侵占行为选择与金字塔股权结构形态特征正相关,与两权分离程度负相关。金字塔股权结构的内部制衡机制不仅直接影响股东侵占行为,并能够强化金字塔基本形态的影响作用。为保护中小股东的权益不受侵占,应完善公司治理结构,规范信息披露制度,并加强对上市公司大股东的监管。     

Dividend clienteles: a global investigation

We compare the cross-sectional variation in the dividend payout policies of companies across 32 countries. Beyond the impact of firm-specific accounting and financial variables, this study investigates how the country level variations: shareholder demand due to demographic variations and consumption needs, agency problems manifested in the extent of minority shareholder protection and business disclosures, and market quality in terms of transparency and liquidity; affect the dividend payout policies. We find that firms have generous dividend payout policies when diverse shareholder demands are strong, extents of business disclosures and legal protections are weak, and the market qualities are poor. The empirical evidence supports the presence of strong dividend clienteles in a global setting.