Political Connections and Dividends Payout in Malaysia: The Influence of Institutional Investors
47 Pages Posted: 31 Jan 2015
Date Written: January 30, 2015
This study examines the agency problem of expropriation using dividends in politically connected firms and the relevance of institutional investors in limiting this problem. Our results suggest that politically connected firms (PCON) have a preference to pay lower dividends whereas institutional investors are more likely to demonstrate a higher preference for higher dividends. The interaction effects between political connection and institutional investors indicate a positive relationship with dividends which suggest that, in the presence of institutional investors, politically connected firms are more likely to be associated with higher dividends payout. This further emphasizes on the role of institutional investors in limiting expropriation concerns within PCON firms. Our further analysis also suggests that institutional investors are more concerned with higher capital investment which in turn creates the potential to enhance firm valuation (contrary to PCON firms). Our findings are important especially to regulators, in order for them to promote and facilitate the participations of institutional investors with a view to constrain the behavior of PCON firms, enhance firm value and protect shareholders’ interest.
Keywords: Political connection, Institutional investors, Dividend payout, Agency costs
JEL Classification: G35, G30, G23
Suggested Citation: Suggested Citation