Mandatory Dividend, Agency Problems, and Corporate Investment
34 Pages Posted: 30 Jul 2022
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
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