Advanced Search
MyIDEAS: Login to save this article or follow this journal

How corporate governance affects payout policy under agency problems and external financing constraints

Contents:

Author Info

  • Chae, Joon
  • Kim, Sungmin
  • Lee, Eun Jung

Abstract

This paper analyzes the effect of corporate governance on the payout policy when a firm has both agency problems and external financing constraints. We empirically test whether strong corporate governance would lead to higher payout to minimize agency problems (outcome hypothesis), or to lower payout to avoid costly external financing (substitute hypothesis). We find that firms with higher (lower) external financing constraints tend to decrease (increase) payout ratio with an improvement in their corporate governance. The results are consistent with our hypothesis that the relation between payout and corporate governance is reversed depending on the relative sizes of agency and external financing costs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VCY-4W8TW41-1/2/1568da0ac51874da84b7133b32c18d43
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 11 (November)
Pages: 2093-2101

as in new window
Handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2093-2101

Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Payout policy Corporate governance Agency problems External financing constraints;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 703-08, May.
  2. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, Elsevier, vol. 83(3), pages 599-634, March.
  3. Philip E. Berger & Eli Ofek & David Yermack, 1996. "Managerial Entrenchment and Capital Structure Decisions," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 96-14, New York University, Leonard N. Stern School of Business-.
  4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  5. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, American Finance Association, vol. 54(6), pages 1969-1997, December.
  6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  7. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
  8. Jiraporn, Pornsit & Kim, Young Sang & Davidson, Wallace N. & Singh, Manohar, 2006. "Corporate governance, shareholder rights and firm diversification: An empirical analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(3), pages 947-963, March.
  9. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
  10. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, American Finance Association, vol. 44(3), pages 771-87, July.
  11. Smith, C.W. & Watts, R.L., 1992. "The Investment Oppotunity set and Corporate Financing, Dividend and Compensation Policies," Papers, Rochester, Business - Financial Research and Policy Studies 92-02, Rochester, Business - Financial Research and Policy Studies.
  12. Alessandra Guariglia, . "Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of UK firms," Discussion Papers 07/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  13. Krasker, William S, 1986. " Stock Price Movements in Response to Stock Issues under Asymmetric Information," Journal of Finance, American Finance Association, American Finance Association, vol. 41(1), pages 93-105, March.
  14. Bagwell, Laurie Simon & Shoven, John B, 1989. "Cash Distributions to Shareholders," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 129-40, Summer.
  15. Franklin Allen & Roni Michaely, 2002. "Payout Policy," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
  16. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, American Economic Association, vol. 74(4), pages 650-59, September.
  17. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert Vishny, 1998. "Agency Problems and Dividend Policies Around the World," NBER Working Papers 6594, National Bureau of Economic Research, Inc.
  18. Krishnaswami, Sudha & Subramaniam, Venkat, 1999. "Information asymmetry, valuation, and the corporate spin-off decision," Journal of Financial Economics, Elsevier, Elsevier, vol. 53(1), pages 73-112, July.
  19. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, American Finance Association, vol. 57(4), pages 1649-1684, 08.
  20. Zwiebel, Jeffrey, 1996. "Dynamic Capital Structure under Managerial Entrenchment," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1197-1215, December.
  21. Dittmar, Amy K, 2000. "Why Do Firms Repurchase Stock?," The Journal of Business, University of Chicago Press, vol. 73(3), pages 331-55, July.
  22. Pattenden, Kerry & Twite, Garry, 2008. "Taxes and dividend policy under alternative tax regimes," Journal of Corporate Finance, Elsevier, Elsevier, vol. 14(1), pages 1-16, February.
  23. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  24. Cleary, Sean, 2006. "International corporate investment and the relationships between financial constraint measures," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(5), pages 1559-1580, May.
  25. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(2), pages 187-221, June.
  26. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 323-29, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Byrne, Julie & O’Connor, Thomas, 2012. "Creditor rights and the outcome model of dividends," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 52(2), pages 227-242.
  2. Wang, Weishen & Whyte, Ann Marie, 2010. "Managerial rights, use of investment banks, and the wealth effects for acquiring firms' shareholders," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(1), pages 44-54, January.
  3. Brockman, Paul & Unlu, Emre, 2011. "Earned/contributed capital, dividend policy, and disclosure quality: An international study," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(7), pages 1610-1625, July.
  4. Kang, Hyung Cheol & Lee, Dong Wook & Park, Kyung Suh, 2010. "Does the difference in valuation between domestic and foreign investors help explain their distinct holdings of domestic stocks?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(12), pages 2886-2896, December.
  5. Thomas O'Connor, 2012. "Dividend payout and corporate governance along the corporate life-cycle," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n228-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  6. Tsoukas, Serafeim, 2011. "Firm survival and financial development: Evidence from a panel of emerging Asian economies," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(7), pages 1736-1752, July.
  7. Thomas O'Connor & Julie Byrne, 2012. "Shareholder and creditor legal rights and the outcome model of dividends," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n225-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  8. Breuer, Wolfgang & Rieger, M. Oliver & Soypak, K. Can, 2014. "The behavioral foundations of corporate dividend policy a cross-country analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 42(C), pages 247-265.
  9. Mori, Naoya, 2010. "Tax clientele effects of dividends under intertemporal consumption choices," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(5), pages 1089-1097, May.
  10. Renneboog, Luc & Trojanowski, Grzegorz, 2011. "Patterns in payout policy and payout channel choice," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(6), pages 1477-1490, June.
  11. King, Tao-Hsien Dolly & Wen, Min-Ming, 2011. "Shareholder governance, bondholder governance, and managerial risk-taking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 512-531, March.
  12. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2014. "Controlling shareholder, split-share structure reform and cash dividend payments in China," International Review of Economics & Finance, Elsevier, Elsevier, vol. 29(C), pages 339-357.
  13. Hwang, Lee-Seok & Kim, Hakkon & Park, Kwangwoo & Park, Rae Soo, 2013. "Corporate governance and payout policy: Evidence from Korean business groups," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 24(C), pages 179-198.
  14. Bennedsen, Morten & Nielsen, Kasper Meisner, 2010. "Incentive and entrenchment effects in European ownership," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(9), pages 2212-2229, September.
  15. Xiao, Gang, 2013. "Legal shareholder protection and corporate R&D investment," Journal of Corporate Finance, Elsevier, Elsevier, vol. 23(C), pages 240-266.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2093-2101. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.