Majority Support of Shareholders, Monitoring Incentive, and Dividend Policy

21 Pages Posted: 10 Nov 2011 Last revised: 13 Mar 2015

See all articles by Naoya Mori

Naoya Mori

Kobe University

Naoshi Ikeda

Tokyo Institute of Technology

Date Written: February 28, 2015

Abstract

As an alternative version of the side-payment model, this paper presents a demonstration of how the necessity of winning majority support of shareholders influences the relation between a blockholder's monitoring incentive and a firm's dividend policy. When dividend-averse individuals collectively hold a majority stake in a dispersed ownership structure, a dividend-seeking blockholder might be compelled to propose lower dividends than the tax-optimum to dominate the zero-dividend proposal. Under such circumstances, the blockholder has an incentive to provide unprofitable monitoring activity as long as the private benefits of tax-saving are greater than the pecuniary loss from the monitoring activity.

Keywords: Ownership structure; Corporate governance; Tax preferences

JEL Classification: G35, G32, G34

Suggested Citation

Mori, Naoya and Ikeda, Naoshi, Majority Support of Shareholders, Monitoring Incentive, and Dividend Policy (February 28, 2015). Journal of Corporate Finance, Vol. 30, 2015. Available at SSRN: https://ssrn.com/abstract=1956519 or http://dx.doi.org/10.2139/ssrn.1956519

Naoya Mori (Contact Author)

Kobe University ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan

Naoshi Ikeda

Tokyo Institute of Technology ( email )

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

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