Dividends as a Substitute for Corporate Law: The Separation of Ownership and Control in the United Kingdom

76 Pages Posted: 13 Jul 2006

See all articles by Brian R. Cheffins

Brian R. Cheffins

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 2006

Abstract

The "law matters" thesis implies countries will not develop a robust stock market or diffuse corporate ownership structures unless laws are in place that curtail the extraction of private benefits of control by large shareholders and address information asymmetries from which outside investors suffer. In Britain, however, the law did not provide extensive protection to shareholders when ownership separated from control, which suggests "investor friendly" corporate and securities law is not a necessary condition for a transition from family capitalism to a corporate economy characterized by widely held firms. If law did not provide the foundation for the unwinding of family ownership what did? This paper argues that the dividend policy of publicly quoted firms played a significant role. Essentially, dividends mimicked the role that the "law matters" thesis attributes to corporate and securities law, namely constraining corporate insiders and supplying information flow to investors. In so doing, dividends helped to provide the platform for ownership to separate from control when law did not provide substantial protection for outside shareholders.

Keywords: corporate law, securities law, corporate ownership, dividend policy, shareholder protection, ownership and control

JEL Classification: G32, G35, G38, K22, N24

Suggested Citation

Cheffins, Brian R., Dividends as a Substitute for Corporate Law: The Separation of Ownership and Control in the United Kingdom (May 2006). ECGI - Law Working Paper No. 69/2006. Available at SSRN: https://ssrn.com/abstract=906068 or http://dx.doi.org/10.2139/ssrn.906068

Brian R. Cheffins (Contact Author)

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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