Why Do Privatized Firms Pay Higher Dividends?

50 Pages Posted: 30 Jul 2014 Last revised: 24 Sep 2016

See all articles by Abhinav Goyal

Abhinav Goyal

University of Liverpool - Management School (ULMS)

Shrikant P. Jategaonkar

Southern Illinois University at Edwardsville - Department of Economics

William L. Megginson

University of Oklahoma

Cal B. Muckley

University College Dublin

Multiple version iconThere are 2 versions of this paper

Date Written: September 22, 2016

Abstract

Newly privatized firms increase dividends after divestment, and also pay significantly higher dividends compared to always-private firms. We examine a sample of 83,468 firm-years (358 privatized and 4,894 always-private firms) across 26 countries and show that the dividend premium is significantly positively related to new agency costs induced by privatization and is associated with levels of increased operating efficiency and higher earnings. The premium manifests in both civil and common law countries, but is significantly higher in civil law countries. Our findings hold invariant to home-country economic development or to the cross-country and temporal variation in the dividend tax penalty.

Keywords: Dividends, dividend tax penalty, pay-out policy, privatization, agency costs

JEL Classification: G35, L33, L25

Suggested Citation

Goyal, Abhinav and Jategaonkar, Shrikant P. and Megginson, William L. and Muckley, Cal B., Why Do Privatized Firms Pay Higher Dividends? (September 22, 2016). Available at SSRN: https://ssrn.com/abstract=2473305 or http://dx.doi.org/10.2139/ssrn.2473305

Abhinav Goyal

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom
+44-151-795-2150 (Phone)

Shrikant P. Jategaonkar

Southern Illinois University at Edwardsville - Department of Economics ( email )

Edwardsville, IL 62026-1102
United States

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Cal B. Muckley

University College Dublin ( email )

Blackrock, Co. Dublin
Ireland
+353-1-716-8091 (Phone)

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