Corporate Governance, Leverage and Dividend Policy

47 Pages Posted: 9 Jun 2006

Multiple version iconThere are 2 versions of this paper

Date Written: August 11, 2005

Abstract

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: Corporate Governance, Capital Structure, Endogenous

JEL Classification: G32, G34, G 35

Suggested Citation

Nielsen, Anders Ersbak Bang, Corporate Governance, Leverage and Dividend Policy (August 11, 2005). EFA 2006 Zurich Meetings. Available at SSRN: https://ssrn.com/abstract=906339 or http://dx.doi.org/10.2139/ssrn.906339

Anders Ersbak Bang Nielsen (Contact Author)

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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