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The Influence of Agency Costs on Dividend Policy in an Emerging Market: “Evidence from the Tehran Stock Exchange”

Author

Listed:
  • Ahmad Ahmadpour

    (Corresponding Author- Assistant Professor of Mazandaran University)

  • Mahmoud yahyazadefar

    (Corresponding Author- Assistant Professor of Mazandaran University)

  • Babak Garmroudi

    (MSC Student)

Abstract

Dividend policy has long been an issue of interest in the financial literature. To date, a number of studies published on agency costs and dividend policy but most of them are on developed markets. It is well known that the emerging markets are quite different from developed markets in all respects. So, the existing published evidence is of limited relevance in identifying the influence of agency costs on dividend policy in an emerging market. The major objective of this paper is to identify the influence of agency costs on dividend policy in an emerging market. The Tehran Stock Exchange (TSE) listed non-financial sector companies for the period of 1997-2002 are considered as the sample of the study. Ordinary Least Square regression model employs to identify the influence of agency costs on dividend policy in an emerging market. The results indicate that number of common stockholders, collateralizable assets, and free cash flow positively related to dividend pay-out ratio. All of these coefficients are in the predicted direction and are quite consistent with the findings of Rozeff’s study (1982) as well as those conducted so far. However, these results support Jensen’s (1986) free cash flow hypothesis. Finally, these results suggest the influence of agency costs on dividend policy in an emerging market.

Suggested Citation

  • Ahmad Ahmadpour & Mahmoud yahyazadefar & Babak Garmroudi, 2006. "The Influence of Agency Costs on Dividend Policy in an Emerging Market: “Evidence from the Tehran Stock Exchange”," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 11(1), pages 59-80, winter.
    • Handle: RePEc:eut:journl:v:11:y:2006:i:1:p:59
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