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Rent Extraction by Large Shareholders: Evidence Using Dividend Policy in the Czech Republic

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Author Info
Jan Bena () (Department of Finance, LSE, London)
Jan Hanousek () (CERGE-EI, Prague)

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Abstract

Using cross-sectional analysis of corporate dividend policy we show that large shareholders extract rents from firms and expropriate minority shareholders in the weak corporate governance environment of an emerging economy. By comparing dividends paid across varying corporate ownership structures – concentration, type, and domicile of ownership – we quantify these effects and reveal that they are substantial. We find that the target payout ratio for firms with majority ownership is low, but that the presence of a significant minority shareholder increases the target payout ratio and hence precludes a majority owner from extracting rent. In contrast to other studies from developed markets, our unique dataset from the Czech Republic for the period 1996–2003 permits us to take account of endogeneity of ownership.

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Publisher Info
Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 58 (2008)
Issue (Month): 3-4 (May)
Pages: 106-130
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Handle: RePEc:fau:fauart:v:58:y:2008:i:3-4:p:106-130

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Related research
Keywords: rent extraction large shareholders corporate governance dividend policy

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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    Other versions:
  3. Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April. [Downloadable!] (restricted)
    Other versions:
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    Other versions:
  9. Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2005. "Origin and Concentration: Corporate Ownership, Control and Performance," CERGE-EI Working Papers wp259, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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    Other versions:
  16. James R. Hines Jr., 1996. "Dividends and Profits: Some Unsubtle Foreign Influences," NBER Working Papers 3730, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Blundell, Richard & Smith, Richard J., 1994. "Coherency and estimation in simultaneous models with censored or qualitative dependent variables," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 355-373. [Downloadable!] (restricted)
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  19. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
  20. Franklin Allen & Antonio E. Bernardo & Ivo Welch, 2000. "A Theory of Dividends Based on Tax Clienteles," Journal of Finance, American Finance Association, vol. 55(6), pages 2499-2536, December. [Downloadable!] (restricted)
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