Corporate Payout Policy in Founder and Family Firms

44 Pages Posted: 31 Mar 2014 Last revised: 2 Jun 2015

See all articles by James Lau

James Lau

Macquarie University; Macquarie University, Macquarie Business School

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Date Written: March 27, 2014

Abstract

This paper investigates the tax and agency explanations of corporate payout policy by investigating the likelihood, the level and the method of payout in founder and family firms. Controlling founders and families are both subject to the tax disadvantage of dividends arising from their substantial shareholdings, but family firms are arguably subject to more severe agency conflicts than founder firms due to their susceptibility to wasteful expenditure and the adverse effects of intra-family conflicts. Results indicate that founder firms on average are less likely and pay a lower level of dividends than family firms. Moreover, founder firms prefer share repurchase over dividends as the main method of payout whereas family firms prefer dividends over share repurchase. Overall, our findings are consistent with the agency explanation of corporate payout policy.

Keywords: Corporate payout policy, founder firms, family firms, dividends

JEL Classification: G32, G35, M13

Suggested Citation

Lau, James and Block, Jorn Hendrich, Corporate Payout Policy in Founder and Family Firms (March 27, 2014). Available at SSRN: https://ssrn.com/abstract=2416874 or http://dx.doi.org/10.2139/ssrn.2416874

James Lau

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Jorn Hendrich Block (Contact Author)

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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