Ownership Concentration, Agency Conflicts, and Dividend Policy in Japan

Posted: 30 Aug 2009

See all articles by Kimie Harada

Kimie Harada

Chuo University - Faculty of Commerce; Chuo University - Graduate School of International Accounting

Pascal Nguyen

Neoma Business School; University of Technology Sydney (UTS); Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 21, 2009

Abstract

We examine the influence of ownership concentration on payout policy in Japan. According to the monitoring hypothesis, large shareholders prefer higher dividends to mitigate the agency cost of free cash flows. In contrast, the rent extraction hypothesis assumes that large shareholders derive private benefits of control and have therefore a preference for lower dividends. Consistent with the second view, we find that ownership concentration is associated with significantly lower payout. Furthermore, the analysis of dividend adjustments indicates that firms with concentrated ownership are less likely to increase dividends following increases in profitability or reductions in leverage. This suggests that large shareholders do not use dividend policy to remove excess cash and impose greater financial discipline. Instead, the results highlight the diverging interests of majority and minority shareholders in Japanese companies.

Keywords: dividend policy, agency conflicts, large shareholders, private benefits

JEL Classification: G35

Suggested Citation

Harada, Kimie and Nguyen, Pascal, Ownership Concentration, Agency Conflicts, and Dividend Policy in Japan (August 21, 2009). Available at SSRN: https://ssrn.com/abstract=1458901

Kimie Harada

Chuo University - Faculty of Commerce ( email )

742-1, Higashinakano
Hacihoji
Tokyo, 192-0393
Japan

Chuo University - Graduate School of International Accounting ( email )

42-8, Ichigaya-Motomuacho
Shinjuku-ku
Tokyo 162-8473
Japan

Pascal Nguyen (Contact Author)

Neoma Business School ( email )

1 Rue du Maréchal Juin
Mont Saint Aignan Cedex, 76825
France
+33 2 3282 5774 (Phone)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
+61 2 9514 7718 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=4415

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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