Mandatory Dividend, Agency Problems, and Corporate Investment

34 Pages Posted: 30 Jul 2022

See all articles by Guilherme Kirch

Guilherme Kirch

Universidade Federal do Rio Grande do Sul (UFRGS)

Daniel Francisco Vancin

affiliation not provided to SSRN

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Abstract

In this paper we try to understand the adverse consequences of mandatory dividend rules. We identify two main reasons why firms pay only the mandatory dividend: financial constraints and private benefits. Using a sample of Brazilian companies, we found evidences that firms that pay only the minimum dividend are motivated by financial constraints and private benefits. Further, 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.

Keywords: dividend policy, corporate investment, Mandatory Dividend Rules, Financial constraints, Agency Problems and Private Benefits, developing country

Suggested Citation

Kirch, Guilherme and Vancin, Daniel Francisco, Mandatory Dividend, Agency Problems, and Corporate Investment. Available at SSRN: https://ssrn.com/abstract=4177105

Guilherme Kirch (Contact Author)

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

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Daniel Francisco Vancin

affiliation not provided to SSRN ( email )

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