Why Do Privatized Firms Pay Higher Dividends?

Abstract

We examine state income and reputation incentives to account for the high dividends of privatized firms. Consistent with these agency-cost based incentives, we show that the extent of state ownership positively impacts corporate dividends. We distinguish between the empirical importance of these incentives using variation in the rule of law to protect minority shareholders, the fiscal deficit and the political orientation of the state. Our findings show that an incentive to enhance the state's reputation with minority shareholders can account for the high dividends of privatized firms.

Keywords: Privatization, State ownership, Payout policy, Dividends, Minority shareholders, State income, State reputation

JEL Classification: G35, L33, L25