Dividends and Expropriation

Abstract:     
In Western Europe and East Asia, capital markets require higher dividends from corporations tightly affiliated (at the 20% level of control) to a group and, within a group, from corporations whose controlling shareholder has a lower ratio O/C of ownership to control rights. For loosely-affiliated corporations (whose controlling shareholder holds between 10% and 20% of control rights), dividends are positively related to O/C, reflecting expropriation not contained by capital markets. Such corporations comprise 2.94% of European corporations, but 15.44 % of Asian corporations. In our 9 Asian economies, the 11 largest groups at the 10% level comprise 53.75% of all corporations and 84.58% of loosely-affiliated corporations, so most expropriation occurs here. Dividend are higher in Europe than in Asia; having multiple large shareholders increases dividends in Europe but decreases them in Asia.

JEL Classifications: G3, G35

Working Paper Series