IDEAS home Printed from https://ideas.repec.org/p/may/mayecw/n228-12.pdf.html
   My bibliography  Save this paper

Dividend payout and corporate governance along the corporate life-cycle

Author

Listed:
  • Thomas O'Connor

    (Department of Economics Finance and Accounting, National University of Ireland, Maynooth)

Abstract

Manuscript Type: Empirical Research Question/Issue: This study seeks to test the outcome and substitution agency models of dividends at different stages of the corporate life-cycle. Research Findings/Insights: In a sample of 220 firms from 21 emerging market countries, I show that the outcome model of dividends, which predicts that dividend payout increases in the strength of shareholder rights, prevails all along the corporate life-cycle, but only where creditor rights are strong. Hence, the agency cost of equity and debt version of the outcome model of dividends holds. I find no evidence in support of the substitution model of dividends. Theoretical/Academic Implications: The findings in this paper serve to highlight the profound influence that creditors exert on corporate payout policy. When shareholders enjoy considerable legal rights, but not so creditors, creditors demand, and firms consent to lower dividends. Furthermore, I find no evidence to suggest that firms substitute (large) dividends for poor governance in emerging markets.

Suggested Citation

  • Thomas O'Connor, 2012. "Dividend payout and corporate governance along the corporate life-cycle," Economics Department Working Paper Series n228-12.pdf, Department of Economics, National University of Ireland - Maynooth.
    • Handle: RePEc:may:mayecw:n228-12.pdf
    as

    Download full text from publisher

    File URL: http://repec.maynoothuniversity.ie/mayecw-files/N228-12.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    3. Brockman, Paul & Unlu, Emre, 2009. "Dividend policy, creditor rights, and the agency costs of debt," Journal of Financial Economics, Elsevier, vol. 92(2), pages 276-299, May.
    4. Hoje Jo & Carrie Pan, 2009. "Why are firms with entrenched managers more likely to pay dividends?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(1), pages 87-116, February.
    5. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    6. Brockman, Paul & Unlu, Emre, 2011. "Earned/contributed capital, dividend policy, and disclosure quality: An international study," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1610-1625, July.
    7. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    8. Bartram, Söhnke M. & Brown, Philip & How, Janice C.Y. & Verhoeven, Peter, 2007. "Agency Conflicts and Corporate Payout Policies: A Global Study," MPRA Paper 23244, University Library of Munich, Germany.
    9. Reena Aggarwal & Isil Erel & René Stulz & Rohan Williamson, 2010. "Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 3131-3169, March.
    10. Benos, Evangelos & Weisbach, Michael S., 2004. "Private benefits and cross-listings in the United States," Emerging Markets Review, Elsevier, vol. 5(2), pages 217-240, June.
    11. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    12. Fodil Adjaoud & Walid Ben-Amar, 2010. "Corporate Governance and Dividend Policy: Shareholders' Protection or Expropriation?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 648-667.
    13. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, June.
    14. Gustavo Grullon & Roni Michaely & Bhaskaran Swaminathan, 2002. "Are Dividend Changes a Sign of Firm Maturity?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 387-424, July.
    15. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, vol. 89(1), pages 62-82, July.
    16. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    17. Mitton, Todd, 2004. "Corporate governance and dividend policy in emerging markets," Emerging Markets Review, Elsevier, vol. 5(4), pages 409-426, December.
    18. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    19. Chae, Joon & Kim, Sungmin & Lee, Eun Jung, 2009. "How corporate governance affects payout policy under agency problems and external financing constraints," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2093-2101, November.
    20. Art Durnev & E. Han Kim, 2007. "Explaining Differences in the Quality of Governance Among Companies: Evidence from Emerging Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 16-24, January.
    21. Chen, Kevin C.W. & Chen, Zhihong & Wei, K.C. John, 2009. "Legal protection of investors, corporate governance, and the cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 273-289, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas O'Connor, 2012. "Dividend payout, corporate governance, and the enforcement of creditor rights in emerging markets," Economics Department Working Paper Series n227-12.pdf, Department of Economics, National University of Ireland - Maynooth.
    2. Thomas O'Connor, 2013. "Dividend payout and corporate governance in emerging markets: which governance provisions matter?," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 4(2), pages 181-207.
    3. Thomas O'Connor & Julie Byrne, 2012. "Shareholder and creditor legal rights and the outcome model of dividends," Economics Department Working Paper Series n225-12.pdf, Department of Economics, National University of Ireland - Maynooth.
    4. Byrne, Julie & O’Connor, Thomas, 2012. "Creditor rights and the outcome model of dividends," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 227-242.
    5. Hussein Abedi Shamsabadi & Byung-Seong Min & Richard Chung, 2016. "Corporate governance and dividend strategy: lessons from Australia," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(5), pages 583-610, October.
    6. Byrne, Julie & O’Connor, Thomas, 2017. "Creditor rights, culture and dividend payout policy," Journal of Multinational Financial Management, Elsevier, vol. 39(C), pages 60-77.
    7. Richard Herron, 2022. "Payout policy and the interaction of firm-level and country-level governance," Review of Quantitative Finance and Accounting, Springer, vol. 58(1), pages 1-39, January.
    8. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    9. Booth, Laurence & Zhou, Jun, 2017. "Dividend policy: A selective review of results from around the world," Global Finance Journal, Elsevier, vol. 34(C), pages 1-15.
    10. Ge, Wenxia & Kim, Jeong-Bon & Song, Byron Y., 2012. "Internal governance, legal institutions and bank loan contracting around the world," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 413-432.
    11. Byrne, Julie & O'Connor, Thomas, 2017. "How do creditors respond to disclosure quality? Evidence from corporate dividend payouts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 154-172.
    12. Liang Shao & Chuck C.Y. Kwok & Omrane Guedhami, 2013. "Dividend Policy: Balancing Shareholders' And Creditors' Interests," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(1), pages 43-66, January.
    13. Hamdi Ben-Nasr, 2015. "Government Ownership and Dividend Policy: Evidence from Newly Privatised Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(5-6), pages 665-704, June.
    14. Goyal, Abhinav & Muckley, Cal, 2013. "Cash dividends and investor protection in Asia," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 31-43.
    15. Bruno, Valentina & Claessens, Stijn, 2010. "Corporate governance and regulation: Can there be too much of a good thing?," Journal of Financial Intermediation, Elsevier, vol. 19(4), pages 461-482, October.
    16. Lepetit, L. & Meslier, C. & Strobel, F. & Wardhana, L., 2018. "Bank dividends, agency costs and shareholder and creditor rights," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 93-111.
    17. Thomas J.Flavin & Abhinav Goyal & Thomas O'Connor, 2020. "Role of corporate governance and lifecycle in determining payout precommitment in an emerging economy," Economics Department Working Paper Series n297-20.pdf, Department of Economics, National University of Ireland - Maynooth.
    18. Thomas O'Connor & Julie Byrne, 2015. "Governance and the corporate life-cycle," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 23-43, February.
    19. Chintrakarn, Pandej & Jiraporn, Pornsit & Treepongkaruna, Sirimon & Mook Lee, Sang, 2022. "The effect of board independence on dividend payouts: A quasi-natural experiment," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    20. Brockman, Paul & Unlu, Emre, 2011. "Earned/contributed capital, dividend policy, and disclosure quality: An international study," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1610-1625, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:may:mayecw:n228-12.pdf. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/demayie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.