The Outcome Versus Substitute Models of Dividends: A Change in Minority Shareholder Protection

62 Pages Posted: 8 Jul 2020

See all articles by Ricardo D. Brito

Ricardo D. Brito

FEA-USP

Paulo Sergio Ribeiro

Insper Institute of Education and Research

Antonio Sanvicente

Fundação Getulio Vargas

Date Written: May 20, 2020

Abstract

The new Brazilian Company Law, enacted in 1976, increased the protection of minority shareholder rights, providing an experiment to test alternative agency theories of dividends. Are dividends an outcome of the effective legal protection of shareholders? Or are dividends a substitute for legal protection? In the pre-1977 low-legal protection Brazilian market, growing firms issuing equity in the future used to signal their type through higher dividends. With the new law protecting outside investors, dividend payouts do not generally increase, mature firms do not pay higher dividends, but growing firms cut them down, results that support the Substitute narrative of dividends.

Keywords: Agency Problems, Dividend Policy, Signaling

JEL Classification: G32, G35

Suggested Citation

Brito, Ricardo Dias and Ribeiro, Paulo Sergio and Sanvicente, Antonio, The Outcome Versus Substitute Models of Dividends: A Change in Minority Shareholder Protection (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3621120 or http://dx.doi.org/10.2139/ssrn.3621120

Ricardo Dias Brito (Contact Author)

FEA-USP ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900
Brazil

Paulo Sergio Ribeiro

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Antonio Sanvicente

Fundação Getulio Vargas ( email )

Rua Itapeva 474 s.1202
São Paulo
Brazil
1137997918 (Phone)
01332 (Fax)

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