Controlling Shareholders' Opportunism: The Case of Share Repurchase and Cash Dividends
36 Pages Posted: 13 Jan 2009
Date Written: January 11, 2009
This study examines how share repurchase and dividend policies are influenced by controlling shareholders in an emerging market. Share repurchase can be utilized opportunistically by controlling shareholders, particularly when they exercise voting rights in excess of cash-flow rights. The evidence of Korean firms shows that firms with a big wedge between the voting rights and cash-flow rights repurchase more shares, while firms with a small wedge distribute more cash dividends. In addition, we find that cash flows are significantly lower for firms with share-repurchase only than for those with neither share repurchase nor dividends. Overall, our results indicate that controlling shareholders use share repurchase as a temporary opportunism.
Keywords: Controlling shareholders, share repurchases, dividends, wedge, cash-flow rights, voting rights
JEL Classification: G32, G35, G34, D82, G15
Suggested Citation: Suggested Citation