Dividend Payouts and Corporate Governance Quality: Evidence from the Institutional Shareholder Services (ISS)

The Financial Review, Vol. 46, pp. 251-279, 2011

38 Pages Posted: 5 Jul 2010 Last revised: 25 Oct 2011

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: July 4, 2010

Abstract

Motivated by agency theory, we investigate how a firm’s overall quality of corporate governance affects its dividend policy. Using a large sample of firms with governance data from The Institutional Shareholder Services (ISS), we find that firms with stronger governance exhibit a higher propensity to pay dividends and, for dividend payers, pay larger dividends. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic managers. We employ the two-stage least squares (2SLS) approach to cope with possible endogeneity and still obtain consistent results. Our results are important as they show that corporate governance quality does have a palpable impact on critical corporate decisions such as dividend policy.

Keywords: Dividend policy, Corporate governance, Agency theory, Agency costs

JEL Classification: G30, G32, G34

Suggested Citation

Jiraporn, Pornsit and Kim, Jang-Chul and Kim, Young Sang, Dividend Payouts and Corporate Governance Quality: Evidence from the Institutional Shareholder Services (ISS) (July 4, 2010). The Financial Review, Vol. 46, pp. 251-279, 2011. Available at SSRN: https://ssrn.com/abstract=1634662

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Jang-Chul Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-1486 (Phone)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

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