Mandatory Dividend, Agency Problems, and Corporate Investment

34 Pages Posted: 16 Mar 2022

See all articles by Guilherme Kirch

Guilherme Kirch

Universidade Federal do Rio Grande do Sul (UFRGS)

Daniel Vancin

UFRGS

Multiple version iconThere are 2 versions of this paper

Date Written: February 10, 2022

Abstract

In this paper we try to better understand the adverse consequences of mandatory dividend rules. We identify two main reasons why firms may pay only the mandatory minimum dividend: financial constraints and private benefits. We also argue that the consequences of these rules for firms should depend on the reasons behind their choice to pay only the minimum dividend. Using a sample of publicly traded Brazilian companies and multivariate regressions, we found evidences that firms that pay only the minimum dividend are motivated by financial constraints and private benefits. Further, and consistent with our expectations, firms that pay only the mandatory minimum dividend due to financial constraint considerations tend to have a higher value attached to their cash holdings and tend to reduce investments more intensely in response to a shock that increases the cost of external finance. Thus, we concluded that mandatory dividend rules adversely affect some firms and that more flexible rules should be considered.

Keywords: Mandatory Dividends, Financial Constraints, Agency Problems, Corporate Investment

JEL Classification: G32, G35

Suggested Citation

Kirch, Guilherme and Vancin, Daniel, Mandatory Dividend, Agency Problems, and Corporate Investment (February 10, 2022). Available at SSRN: https://ssrn.com/abstract=4031459 or http://dx.doi.org/10.2139/ssrn.4031459

Guilherme Kirch (Contact Author)

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

Rua Washington Luiz, 855
Porto Alegre, RS, Rio Grande do Sul 90010-460
Brazil
+55 (51) 3308 3722 (Phone)
+55 (51) 3308 3991 (Fax)

HOME PAGE: http://www.ufrgs.br/escoladeadministracao/guilherme-kirch/

Daniel Vancin

UFRGS ( email )

Porto-Alegre-RS
Brazil

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