Corporate Payout Policy in Dual-Class Firms

56 Pages Posted: 16 Jan 2012 Last revised: 7 May 2013

See all articles by Bradford D. Jordan

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics

Qun Wu

U of Nevada, Reno

Date Written: October 29, 2012

Abstract

Using a sample of U.S. firms from 1995 to 2002, we examine corporate payout policy in dual-class firms. The expropriation hypothesis predicts that dual-class firms pay out less to shareholders because entrenched managers want to maximize the value of assets under control and the private benefits associated with it. The pre-commitment hypothesis predicts that dual-class firms pay out more to shareholders because firms use corporate payouts as a pre-commitment device to mitigate agency costs. Our results support the pre-commitment hypothesis. Dual-class firms have higher cash dividend payments and total payouts, and use more regular cash dividends rather than special dividends or repurchases, compared to single-class firms. Dual-class firms with severe free cash flow problems and few growth opportunities rely even more on corporate payouts as a pre-commitment mechanism. We also rule out the alternative hypothesis that dual-class firms pay out more because super-voting shareholders lack the ability to generate home-made dividends by selling shares since super-voting shares are non-tradable.

Keywords: dual class, voting rights, cash flow rights, dividends, payout policy

JEL Classification: G30, G32, G34, G35

Suggested Citation

Jordan, Bradford D. and Liu, Mark H. and Wu, Qun, Corporate Payout Policy in Dual-Class Firms (October 29, 2012). Available at SSRN: https://ssrn.com/abstract=1985683 or http://dx.doi.org/10.2139/ssrn.1985683

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)

Qun Wu (Contact Author)

U of Nevada, Reno ( email )

1664 N Virginia St
Reno, NV NEVADA 89557
United States
7756829173 (Phone)

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