Do Corporate General Counsels Mitigate Agency Problems? Evidence from Dividend Payout Decisions

60 Pages Posted: 19 Feb 2019 Last revised: 16 Dec 2021

See all articles by Muhammad Jahangir Ali

Muhammad Jahangir Ali

La Trobe University, Department of Accounting, Data Analytics, Economics and Finance

Balasingham Balachandran

La Trobe Business School, La Trobe University; Financial Research Network (FIRN)

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Michael Michael

La Trobe University

Date Written: December 15, 2021

Abstract

Firms with corporate general counsels in top management (TMCs) are less likely to pay dividends, and when they pay dividends, the dividend payouts are lower. Our results hold addressing endogeneity concerns and selection biases. TMCs exacerbate underpayment of dividends where external monitoring is weaker. However, when firms with TMCs experience serious agency problems, we find support for the monitoring hypothesis even when external monitoring is weaker. Further, we find that longer tenures and higher compensations enhance TMCs’ roles as facilitators. However, when firms experience serious agency problems, longer tenures and higher compensations are associated with dividend payments and larger dividend payouts, thus weakening the facilitator role and supporting the monitoring hypothesis. Overall, TMCs play facilitator roles supporting the strategic alignment hypothesis in general; however, they ensure that such roles would not be in violation of the requisite legal requirements and TMCs perform monitoring roles when serious agency problems occur.

Keywords: Corporate General Counsel; Decision to pay Dividend; Dividend Payout; Agency Costs; Facilitator, Monitoring; Strategic Alignment; Corporate Governance

JEL Classification: G14, G32, K00

Suggested Citation

Ali, Muhammad Jahangir and Balachandran, Balasingham and Theobald, Michael F. and Michael, Michael, Do Corporate General Counsels Mitigate Agency Problems? Evidence from Dividend Payout Decisions (December 15, 2021). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3337978 or http://dx.doi.org/10.2139/ssrn.3337978

Muhammad Jahangir Ali

La Trobe University, Department of Accounting, Data Analytics, Economics and Finance ( email )

Bundoora
Melbourne, 3086
Australia

Balasingham Balachandran (Contact Author)

La Trobe Business School, La Trobe University ( email )

La Trobe Business School
La Trobe University
Bundoora, Victoria 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Michael F. Theobald

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

Michael Michael

La Trobe University ( email )

Plenty Rd & Kingsbury Dr
Bundoora, VIC 3083
Australia

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