Dividend Payouts: Majority Control and Rent Extraction

Journal of Business Economics and Management, 19(4), 648–672. DOI/10.3846/jbem.2018.6808

25 Pages Posted: 14 Feb 2019

See all articles by Seniha Besim

Seniha Besim

affiliation not provided to SSRN

Cahit Adaoglu

Eastern Mediterranean University - Department of Banking and Finance

Date Written: October 15, 2018

Abstract

In Eurasia, Turkey has a “crony” capitalist system with majority control and business groups (BGs) in the hands of a few families. These business groups are often organised around a holding company. We analyse the dividend payouts of family controlled Borsa Istanbul companies, which are affiliated to holding and non-holding BGs. We investigate and quantify the effects of several control-enhancing mechanisms (CEMs) on dividend payouts. We use precise quantitative proxies for CEMs to measure the divergence between control and ownership rights. Supporting the rent extraction hypothesis, holding business group companies have lower dividend payouts as the divergence between control and ownership rights widens and the pyramid wedge increases. However, controlling foreign-family coalitions in holding business group companies curb the rent extraction problem by having a positive effect on the dividend payouts. Overall, for family controlled holding BG companies, the effects of company-specific financial control variables on dividend payouts are stronger than the effects of CEMs. For family controlled non-holding BG companies, there is no empirical support for either the rent extraction or the reputation building hypotheses. The company-specific financial control variables are the main determinants of dividend payouts for family controlled non-holding BG companies.

Keywords: dividend, control, ownership, holding, foreign, rent extraction, reputation building, substitution, expropriation

JEL Classification: G32, G34, G35

Suggested Citation

Besim, Seniha and Adaoglu, Cahit, Dividend Payouts: Majority Control and Rent Extraction (October 15, 2018). Journal of Business Economics and Management, 19(4), 648–672. DOI/10.3846/jbem.2018.6808, Available at SSRN: https://ssrn.com/abstract=3328550

Seniha Besim

affiliation not provided to SSRN

Cahit Adaoglu (Contact Author)

Eastern Mediterranean University - Department of Banking and Finance ( email )

Famagusta North Cyprus, via Mersin-10
Turkey
+903926302116 (Phone)

HOME PAGE: http://www.emu.edu.tr

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