Dividend Policy, Shareholder Rights, and Corporate Governance

34 Pages Posted: 20 Sep 2006

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Yixi Ning

University of Houston - Victoria - School of Business Administration

Date Written: September 18, 2006

Abstract

Grounded in agency theory, this study explores agency costs as a determinant of dividend policy. Specifically, we examine how dividends are related to the strength of shareholder rights. The evidence reveals an inverse association between dividend payouts and shareholder rights, indicating that firms pay higher dividends where shareholder rights are more suppressed. This evidence is consistent with the substitution hypothesis (La Porta et al., 2000), which contends that firms with weak shareholder rights need to establish a reputation for not exploiting shareholders. As a result, these firms pay dividends more generously than do firms with strong shareholder rights. In other words, dividends substitute for shareholder rights. Finally, there is evidence that regulation influences the association between dividends and shareholder rights.

Keywords: dividend policy, shareholder rights, corporate governance

JEL Classification: G30, G32, G34

Suggested Citation

Jiraporn, Pornsit and Ning, Yixi, Dividend Policy, Shareholder Rights, and Corporate Governance (September 18, 2006). Available at SSRN: https://ssrn.com/abstract=931290 or http://dx.doi.org/10.2139/ssrn.931290

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Yixi Ning

University of Houston - Victoria - School of Business Administration ( email )

2002 W Grand Pkwy
Katy, TX 77449
United States

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