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

54 Pages Posted: 19 Feb 2019

See all articles by Muhammad Jahangir Ali

Muhammad Jahangir Ali

La Trobe University - Department of Accounting and Management

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Michael Michael

La Trobe University

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Date Written: April 3, 2019

Abstract

We find that firms with a corporate general counsel in top management (CGCs) are less likely to pay dividends, and for such firms that do pay dividends, the dividend payouts are lower. Our results hold after controlling for selection bias using propensity score matching analysis. We also find that the presence of a CGC will reduce the potential for overinvestment and that firms with CGCs invest less in CAPEX than firms without CGCs when there is a tendency to overinvest. Further, we find that firms with CGCs have a higher propensity to pay a dividend or have a higher payout ratio than firms without CGCs where there is the highest likelihood of agency costs deriving from overinvestment problems. We find that the presence of a CGC in a firm will lead to a lower likelihood of share repurchases in an environment characterized by higher free cash problems. Overall, our findings support the important role of the CGC as an effective corporate governance mechanism in dividend decisions.

Keywords: Corporate General Counsel; Decision to pay Dividend; Dividend Payout; Agency Costs; Corporate Governance; Repurchases

JEL Classification: G14, G32, K00

Suggested Citation

Ali, Muhammad Jahangir and Balachandran, Balasingham and Michael, Michael and Theobald, Michael F., Do Corporate General Counsels Mitigate Agency Problems? Evidence from Dividend Policy Decisions (April 3, 2019). 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 and Management ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

Balasingham Balachandran

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 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 Michael

La Trobe University ( email )

Plenty Rd & Kingsbury Dr
Bundoora, VIC 3083
Australia

Michael F. Theobald (Contact Author)

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

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

Register to save articles to
your library

Register

Paper statistics

Downloads
40
Abstract Views
430
PlumX Metrics