Product Market Competition, Dividend Policy, and Shareholder Protection: The International Evidence
38 Pages Posted: 2 Feb 2017
Date Written: February 1, 2017
This study examines whether dividend payout, an internal corporate governance mechanism, is a substitute or an outcome of product market competition, an external corporate governance mechanism. The sample includes firms in six of the world’s most prominent economies. We find that firms in more competitive industries pay less in the way of dividends to their shareholders, which is consistent with the notion that dividends and competition are substitutes. We also determine that the negative relationship between dividends and competition is attenuated by the passage of the Sarbanes-Oxley Act (SOX) and is weaker in countries with a stronger set of protections for minority shareholders. Our empirical findings are robust to alternative measures of dividend payout, industry definition, and shareholder protection.
Keywords: Dividends; Payout, Concentration, Competition, Shareholder protection, SOX
JEL Classification: G30, G35
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