Do Family Firms Use Dividend Policy as a Governance Mechanism? Evidence from the Euro Zone
19 Pages Posted: 11 Sep 2012
Date Written: September 2012
Manuscript Type. Empirical. Research Question/Issue. This study investigates whether family firms use dividend policy as a corporate governance mechanism to overcome agency problems between the controlling family and minority investors. We further account for deviations between ownership and control and consider the presence and identity of other large shareholders in family companies. Research Findings/Insights. Based on a sample of firms from nine Eurozone countries and using a panel data method, we find that family firms distribute higher and more stable dividends to alleviate expropriation concerns of minority investors. However, the higher dividend payments are mainly explained by family firms with no separation between the largest owner's voting and cash flow rights and those with non‐family second blockholders. Theoretical/Academic Implications. We contribute to the literature by shedding light on how the family business model affects companies’ dividend preferences. Our research also highlights the importance of taking into account the identity of large shareholders, especially in a context in which concentrated ownership structures are commonplace. The reported differences in dividend policies between family and non‐family firms help to clarify the variant performances of family businesses found in previous studies. Practitioner/Policy Implications. Family firms should regard dividend policy as a governance tool that allows them to attract prospective investors and enlarge their shareholder base. Simultaneously, minority investors can benefit from family firms’ dividend decisions. Our evidence also suggests that European policy makers should lay the necessary foundations to prevent controlling families from adopting ownership structures that serve their own personal interests.
Keywords: Corporate Governance, Family Control, Dividend Policy, Second Blockholders, Euro zone
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