Corporate Governance, Leverage and Dividend Policy

Posted: 28 Dec 2005

Multiple version iconThere are 2 versions of this paper

Date Written: September 30, 2005


This paper develops an agency model of the firm where the endogenous choice of corporate governance is driven by a trade-off between control by strong shareholders and control through a tight capital structure. The existence of this trade-off is documented for the US-market. Empirically, companies with weaker shareholders are more highly levered, more likely to pay dividends, and conditional upon paying, pay higher dividends. A one standard deviation decrease in shareholder power increases the propensity to pay dividends by up to 13%. In the model, limited shareholder power is optimal and more valuable companies offer higher levels of shareholder power.

Keywords: governance index, leverage, dividends, corporate governance

JEL Classification: G30, G32, G35, G38

Suggested Citation

Nielsen, Anders Ersbak Bang, Corporate Governance, Leverage and Dividend Policy (September 30, 2005). Available at SSRN: or

Anders Ersbak Bang Nielsen (Contact Author)

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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