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Dividends and Politics (Revised)

68 Pages Posted: 5 Feb 2005  

Steven A. Bank

University of California, Los Angeles (UCLA) - School of Law

Marc Goergen

Cardiff University - Cardiff Business School; European Corporate Governance Institute (ECGI)

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: March 2006

Abstract

Influential contributors to debates concerning corporate governance assert that it is impossible to understand key trends without taking politics into account. This proposition has, however, remained largely untested. This paper therefore offers an empirical study of the relation between politics and corporate governance, with the focus being on the determinants of dividend policy in publicly quoted United Kingdom (U.K.) companies between 1950 and the present. The departure point is the well-known partial adjustment model of dividend policy, which we augment to take into account the ideological orientation of the party in power and other potentially salient proxies for politics (e.g. tax policy and dividend controls). The model is tested by reference to aggregate annual data on earnings and dividends. The results indicate that the political placement of the party in office lacks explanatory power. Moreover, even when politics manifests itself in regulation explicitly designed to regulate corporate behaviour, political variables generally do not correlate in the predicted direction with dividend pay-outs. The evidence therefore is inconsistent with the proposition that politics shape corporate governance.

Keywords: corporate governance, dividend policy, politics, tax rules, dividend controls, unions, labor costs, corporate law

JEL Classification: G35, G38, H25, J30, K22, K34, N14

Suggested Citation

Bank, Steven A. and Goergen, Marc and Cheffins, Brian R., Dividends and Politics (Revised) (March 2006). ECGI - Law Working Paper No. 24/2004; UCLA School of Law, Law-Econ Research Paper No. 04-17. Available at SSRN: https://ssrn.com/abstract=636523 or http://dx.doi.org/10.2139/ssrn.636523

Steven A. Bank

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-794-7601 (Phone)

Marc Goergen (Contact Author)

Cardiff University - Cardiff Business School ( email )

Colum Drive
Cardiff, CF10 3EU
United Kingdom

HOME PAGE: http://www.cf.ac.uk/carbs/faculty/goergenm/index.html

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Brian R. Cheffins

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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