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Dividends, Corporate Monitors and Agency Costs

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  • Kenneth A. Borokhovich
  • Kelly R. Brunarski
  • Yvette Harman
  • James B. Kehr
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    Abstract

    We report new evidence on the hypothesis that dividends reduce agency costs. Consistent with dividends as a mechanism to reduce agency costs, we find that, on average, firms with a majority of strict outside directors on their boards experience significantly lower mean abnormal returns around the announcements of sizeable dividend increases. Our results are robust to multivariate controls for firm size, leverage, ownership, growth options, and change in dividend yield. However, we find no evidence that dividend increases reduce agency costs as measured by poison pills or outside blockholdings. Copyright 2005 by the Eastern Finance Association.

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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal The Financial Review.

    Volume (Year): 40 (2005)
    Issue (Month): 1 (02)
    Pages: 37-65

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    Handle: RePEc:bla:finrev:v:40:y:2005:i:1:p:37-65

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    Web page: http://www.easternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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    Cited by:
    1. Neil L. Fargher & Robert A. Weigand, 2009. "Cross-sectional differences in the profits, returns and risk of firms initiating dividends," Managerial Finance, Emerald Group Publishing, vol. 35(6), pages 509-530, May.
    2. Blau, Benjamin M. & Fuller, Kathleen P. & Van Ness, Robert A., 2011. "Short selling around dividend announcements and ex-dividend days," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 628-639, June.
    3. Robert A. Weigand & H. Kent Baker, 2009. "Changing perspectives on distribution policy: The evolution from dividends to share repurchase," Managerial Finance, Emerald Group Publishing, vol. 35(6), pages 479-492, May.

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