Dividend Policy with Controlling Shareholders

33 Pages Posted: 29 Mar 2014

See all articles by Maria Isabel Sáez Lacave

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law; European Corporate Governance Institute (ECGI)

María Gutiérrez Urtiaga

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa; European Corporate Governance Institute (ECGI)

Date Written: March 21, 2014

Abstract

This Article investigates the determinants of dividend policy in firms with concentrated ownership structure. A review of the empirical literature shows that dividend payout ratios are lower in firms with controlling shareholders. We explain this finding as a consequence of the legal rules governing cash distributions, which leave the dividend decision in the hands of the firm insiders, and the lack of monitoring mechanisms for checking the power of controlling shareholders. The analysis of the empirical evidence on dividend policy points out to the existence of an unresolved agency conflict between controlling shareholders and outside investors. We conclude that controlling shareholders are currently using the dividend policy to expropriate minority shareholders.

Keywords: Corporate Governance, Ownership Structure, Corporation Law, Controlling Shareholders, Minority Expropriation, Payout Policy, Dividends

JEL Classification: G32, G34, G35, K22

Suggested Citation

Sáez Lacave, Maria Isabel and Gutiérrez Urtiaga, María, Dividend Policy with Controlling Shareholders (March 21, 2014). European Corporate Governance Institute (ECGI) - Law Working Paper No. 250/2014, Available at SSRN: https://ssrn.com/abstract=2412588 or http://dx.doi.org/10.2139/ssrn.2412588

Maria Isabel Sáez Lacave

Universidad autonoma de Madrid, Faculty of Law ( email )

C/ Kelsen 1
Madrid, 28049
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

María Gutiérrez Urtiaga (Contact Author)

Universidad Carlos III de Madrid-Departamento de Economía de la Empresa ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 624 58 40 (Phone)
+34-91 624 96 07 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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