Relationship Between Corporate Governance and Dividends: Outcome vs. Substitute Model

14 Pages Posted: 24 Dec 2019

See all articles by Alexander Larin

Alexander Larin

National Research University Higher School of Economics

Anna Novak

National Research University Higher School of Economics

Irina Khvostova

National Research University Higher School of Economics

Date Written: December 3, 2019

Abstract

The article discusses the relationship between dividend policy and the quality of corporate governance. On the one hand, decisions on payout policy can be viewed as a mechanism for resolving agency conflict or substitutes for best corporate governance practices, on the other hand, the quality of corporate governance itself is a determining factor in corporate financial decisions. Empirical literature fids proof for both types of the relationship. This paper aims to analyze different explanations of mixed results. We find a set of factors that can affect the link between corporate governance quality and dividend payouts. We show that in some cases substitution effect can dominate the payout policy, but the more often indicators tend to increase Outcome effect with the increase in their values. Positive addition of operational margin and beta as well as negative effects of ROA and firm size do not contradict to the shareholder’s interests and support the idea that dividends work in combination with corporate governance practices to meet the needs.

Keywords: agency conflict, corporate governance, payout policy, panel data, Tobit-model

JEL Classification: G34, G35

Suggested Citation

Larin, Alexander and Novak, Anna and Khvostova, Irina, Relationship Between Corporate Governance and Dividends: Outcome vs. Substitute Model (December 3, 2019). Available at SSRN: https://ssrn.com/abstract=3497579 or http://dx.doi.org/10.2139/ssrn.3497579

Alexander Larin (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Anna Novak

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Irina Khvostova

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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