Dividend Payout, Corporate Governance, and the Enforcement of Creditor Rights in Emerging Markets
The IUP Journal of Corporate Governance, Vol. XII, No. 1, January 2013, pp. 7-34
Posted: 7 Apr 2013
Date Written: April 6, 2013
This paper examines the relationship between the strength of creditor rights, their legal enforcement, corporate governance and corporate dividend payout in a sample of 281 emerging market firms. It shows that the outcome model of dividends holds in emerging markets, but only where the legal enforcement of creditor rights is strong. Where legal enforcement of creditor rights is weak, the shareholders of better-governed firms are not able to use their legal rights to extract large dividends from firms. In contrast, it is also found that the shareholders of better-governed firms are unable to extract large dividends from firms irrespective of the strength of creditor rights. That is, differences in creditor rights are not systematically related to dividend payout in the way predicted by the agency costs of debt and equity version of the outcome model of dividends.
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