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How Relevant is Dividend Policy under Low Shareholder Protection?

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  • Renneboog, L.D.R.
  • Szilagyi, P.G.

    (Tilburg University, Tilburg Law and Economics Center)

Abstract

This paper reopens the debate on the substitutability of dividends and shareholder control in mitigating free cash flow concerns, by examining dividend behavior when shareholder control is restricted in the firm.We consider the stakeholder-oriented governance regime of the Netherlands, where shareholdings are concentrated, but shareholder rights are often severely restricted by a legally imposed governance regime and anti-shareholder devices such as Dutch-style poison pills.We find that dividend payouts are generally low, unresponsive to earnings changes and show little relationship with size, leverage, and investment opportunities.Shareholder power restrictions affect dividend behavior to varying degrees, but those that do are used by the vast majority of Dutch listed firms.Once accounting for these, we find no evidence that strong shareholders would allow firms to relax their dividend policy, as has been proposed in the existing literature.As shareholders, institutional investors and managers actually force higher payouts.Thus, it seems that dividends often complement rather than substitute shareholders efforts to alleviate agency concerns.This finding is unlikely to be specific to the Netherlands, and could possibly be extended to other stakeholder-oriented governance regimes.

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Bibliographic Info

Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2006-019.

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Date of creation: 2006
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Handle: RePEc:dgr:kubtil:2006019

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Citations

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Cited by:
  1. : Jana P. Fidrmuc & Marcus Jacob, 2010. "Culture, Agency Costs and Dividends," Working Papers wpn10-01, Warwick Business School, Finance Group.
  2. Andres, C. & Betzer, A. & Goergen, M. & Renneboog, L.D.R., 2008. "The Dividend Policy of German Firms," Discussion Paper 2008-67, Tilburg University, Center for Economic Research.
  3. L. Ruzhanskaia & S. Luk'ianov, 2011. "Characteristics of the Dividend Policy of Russian Companies and the Interests of Investors," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 54(2), pages 75-92, June.
  4. Renneboog, Luc & Trojanowski, Grzegorz, 2011. "Patterns in payout policy and payout channel choice," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1477-1490, June.
  5. de Jong, A. & van der Poel, A.M. & Wolfswinkel, M., 2007. "Corporate Governance and Acquisitions: Acquirer Wealth Effects in the Netherlands," ERIM Report Series Research in Management ERS-2007-016-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  6. L. Ruzhanskaya & S. Lukyanov., 2010. "Dividend Policy of Russian Companies and the Investors’ Interests," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 3.
  7. Fidrmuc, Jana P. & Jacob, Marcus, 2010. "Culture, agency costs, and dividends," Journal of Comparative Economics, Elsevier, vol. 38(3), pages 321-339, September.
  8. Bøhren, Øyvind & Josefsen, Morten G. & Steen, Pål E., 2012. "Stakeholder conflicts and dividend policy," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2852-2864.

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