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Dividend Policy and Institutional Ownership: Empirical Evidence using a Propensity Score Matching Estimator

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Author Info
Richard Hofler
Julie Ann Elston ()
Junsoo Lee

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Abstract

This study investigates the relationship between institutional ownership and dividend payout behavior of the firm in Germany. Using a propensity scoring method estimator to control for endogeneity problems, we find evidence that neither institutional ownership nor bank control is statistically significant in determining dividend payouts. These findings are consistent with stylized facts regarding the nature of the German institutional environment, which, through the rights of management to retain a significant percentage of the net profits of the firm and lack of tax incentives, reduce agency costs associated with conflicts between management and shareholder interests regarding use of the firm's free cash flow.

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Publisher Info
Paper provided by Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group in its series Papers on Entrepreneurship, Growth and Public Policy with number 2004-27.

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Length: 35 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:esi:egpdis:2004-27

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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
C0 - Mathematical and Quantitative Methods - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Himmelberg, Charles P. & Hubbard, R. Glenn & Love, Inessa, 2002. "Investor protection, ownership, and the cost of capital," Policy Research Working Paper Series 2834, The World Bank. [Downloadable!]
  2. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December. [Downloadable!] (restricted)
  3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
  4. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September. [Downloadable!] (restricted)
  5. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    Other versions:
  6. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-20, September. [Downloadable!] (restricted)
  7. Espen Eckbo, B. & Verma, Savita, 1994. "Managerial shareownership, voting power, and cash dividend policy," Journal of Corporate Finance, Elsevier, vol. 1(1), pages 33-62, March. [Downloadable!] (restricted)
  8. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Human Capital and Productivity Project Working Papers 20035, University of Western Ontario, CIBC Human Capital and Productivity Project. [Downloadable!]
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  9. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring. [Downloadable!] (restricted)
  10. Audretsch, David B. & Elston, Julie Ann, 2002. "Does firm size matter? Evidence on the impact of liquidity constraints on firm investment behavior in Germany," International Journal of Industrial Organization, Elsevier, vol. 20(1), pages 1-17, January. [Downloadable!] (restricted)
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  11. Short, Helen & Zhang, Hao & Keasey, Kevin, 2002. "The link between dividend policy and institutional ownership," Journal of Corporate Finance, Elsevier, vol. 8(2), pages 105-122, March. [Downloadable!] (restricted)
  12. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August. [Downloadable!] (restricted)
  13. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Blackwell Publishing, vol. 64(4), pages 605-54, October. [Downloadable!] (restricted)
  14. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, 02. [Downloadable!] (restricted)
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  15. Amihud, Yakov & Murgia, Maurizio, 1997. " Dividends, Taxes, and Signaling: Evidence from Germany," Journal of Finance, American Finance Association, vol. 52(1), pages 397-408, March. [Downloadable!] (restricted)
  16. Caroline Fohlin, 1998. "Relationship Banking, Liquidity, and Investment in the German Industrialization," Journal of Finance, American Finance Association, vol. 53(5), pages 1737-1758, October. [Downloadable!] (restricted)
  17. Chirinko, R-S & Elston, J-A, 1997. "Finance, Control, and Profitability : An Evaluation of German Bank Influence," Papers 28, American Institute for Contemporary German Studies-.
  18. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04. [Downloadable!] (restricted)
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  19. Franklin Allen & Antonio Bernardo & Ivo Welch, 1998. "A Theory of Dividends Based on Tax Clienteles," Yale School of Management Working Papers ysm92, Yale School of Management. [Downloadable!]
    Other versions:
  20. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Chung-Hua Shen & Yuan Chang, 2009. "Ambition Versus Conscience, Does Corporate Social Responsibility Pay off? The Application of Matching Methods," Journal of Business Ethics, Springer, vol. 88(1), pages 133-153, April. [Downloadable!] (restricted)
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