Too Few Dividends? Groups’ Tunneling Through Chair and Board Compensation

Abstract

Group affiliation increases boards’ compensation in countries as different as Korea, India, Hong Kong and Italy. In this paper, I examine a 6-year sample of controller–dominated, concentrated-ownership firms in Chile in search of a rationale for these results.

I show that, for group-affiliated companies, controllers’ presence on the board of directors is associated with a strong negative relation between chair and board compensation and controllers’ cash-flow rights. Furthermore, I show that controllers of group-affiliated companies prefer to increase chair and board compensation rather than dividends as their cash-flow rights decrease.

Keywords: Tunneling, groups, board compensation, dividends

JEL Classification: G34