Corporate Payout Policy in Founder and Family Firms
44 Pages Posted: 31 Mar 2014 Last revised: 2 Jun 2015
Date Written: March 27, 2014
This paper investigates the tax and agency explanations of corporate payout policy by investigating the likelihood, the level and the method of payout in founder and family firms. Controlling founders and families are both subject to the tax disadvantage of dividends arising from their substantial shareholdings, but family firms are arguably subject to more severe agency conflicts than founder firms due to their susceptibility to wasteful expenditure and the adverse effects of intra-family conflicts. Results indicate that founder firms on average are less likely and pay a lower level of dividends than family firms. Moreover, founder firms prefer share repurchase over dividends as the main method of payout whereas family firms prefer dividends over share repurchase. Overall, our findings are consistent with the agency explanation of corporate payout policy.
Keywords: Corporate payout policy, founder firms, family firms, dividends
JEL Classification: G32, G35, M13
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