Dividend Policy, Corporate Governance and the Managerial Entrenchment Hypothesis: An Empirical Analysis |
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Authors: | Jorge Farinha |
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Affiliation: | Jorge Farinha* |
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Abstract: | This paper analyses the agency explanation for the cross-sectional variation of corporate dividend policy in the UK by looking at the managerial entrenchment hypothesis drawn from the agency literature. Consistent with predictions, a significant U-shaped relationship between dividend payout ratios and insider ownership is observed for a large (exceeding 600 firms) sample of UK companies and two distinct periods. These results strongly suggest the possibility of managerial entrenchment when insider ownership reaches a threshold of around 30%. Evidence is also presented that non-beneficial holdings by insiders can lead to entrenchment in conjunction with shares held beneficially. |
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Keywords: | dividend policy agency theory corporate governance |
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