Blockholder Power, Shareholder Conflicts and Legal Protection: Evidence from Tax Preferences and Payout Decisions

Abstract:     
We examine payout decisions of listed European firms to study the effect of minority shareholder protection on blockholders’ power to promote corporate behavior at the expense of minority shareholders. Based on an extensive panel-data set covering 3,944 firms over the period 1999-2008 we find that payout behavior strongly reflects tax preferences of a firm’s largest shareholder. However, tax preferences of minority shareholders are more likely to be partially reflected in the payout decision, the stronger minority shareholder protection is. Our results are stable against a battery of robustness tests. This includes endogeneity issues, which may be relevant because of the well-known clientele effect. Thus, our analysis documents that legal minority shareholder protection is an important determinant for payout decisions by effectively restricting the power of blockholders.

Number of Pages in PDF File: 64

Keywords: Corporate Governance, Shareholder Protection, Ownership structure, Payout Policy, Taxes

JEL Classification: G15, G18, G30, G32, G35, H24, H25

working papers series