IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Rent extraction by large shareholders: evidence using dividend policy in the Czech Republic

  • Jan Bena
  • Jan Hanousek

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 struc- tures—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 the endogeneity of ownership.

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:
File Function: Open access version.
Download Restriction: no

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24510.

in new window

Length: 38 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ehl:lserod:24510
Contact details of provider: Postal:
LSE Library Portugal Street London, WC2A 2HD, U.K.

Phone: +44 (020) 7405 7686
Web page:

More information through EDIRC

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. 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.
  2. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  3. B. Douglas Bernheim, 1990. "Tax Policy and the Dividend Puzzle," NBER Working Papers 3434, National Bureau of Economic Research, Inc.
  4. Feldstein, Martin & Green, Jerry, 1983. "Why Do Companies Pay Dividends?," American Economic Review, American Economic Association, vol. 73(1), pages 17-30, March.
  5. 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.
  6. Benartzi, Shlomo & Michaely, Roni & Thaler, Richard H, 1997. " Do Changes in Dividends Signal the Future or the Past?," Journal of Finance, American Finance Association, vol. 52(3), pages 1007-34, July.
  7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  8. 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 - Economics Institute, Prague.
  9. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  10. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," NBER Working Papers 8852, National Bureau of Economic Research, Inc.
  11. Bolton, P. & von Thadden, E.L., 1996. "Blocks, liquidity and corporate control," Discussion Paper 1996-80, Tilburg University, Center for Economic Research.
  12. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  13. Barclay, Michael J & Holderness, Clifford G, 1992. "The Law and Large-Block Trades," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 265-94, October.
  14. Bergstrom, Clas & Rydqvist, Kristian, 1990. "Ownership of equity in dual-class firms," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 255-269, August.
  15. Ofer, Aharon R & Siegel, Daniel R, 1987. " Corporate Financial Policy, Information, and Market Expectations: An Empirical Investigation of Dividends," Journal of Finance, American Finance Association, vol. 42(4), pages 889-911, September.
  16. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
  17. Kocenda, Evzen, 1999. "Residual State Property in the Czech Republic," MPRA Paper 70511, University Library of Munich, Germany.
  18. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December.
  19. Claessens, Stijn, 1995. "Corporate governance and equity prices : evidence from the Czech and Slovak Republics," Policy Research Working Paper Series 1427, The World Bank.
  20. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-59, September.
  21. B. Douglas Bernheim & Adam Wantz, 1992. "A Tax-Based Test of the Dividend Signaling Hypothesis," NBER Working Papers 4244, National Bureau of Economic Research, Inc.
  22. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Dividend Policy inside the Firm," NBER Working Papers 8698, National Bureau of Economic Research, Inc.
  23. Joshua Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," NBER Working Papers 8456, National Bureau of Economic Research, Inc.
  24. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
  25. Gugler, Klaus, 2003. "Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1297-1321, July.
  26. 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.
  27. Stijn Claessens & Simeon Djankov, 1999. "Ownership Concentration and Corporate Performance in the Czech Republic," William Davidson Institute Working Papers Series 227, William Davidson Institute at the University of Michigan.
  28. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  29. Nandini Gupta & John Ham & Jan Svejnar, 2000. "Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic," Econometric Society World Congress 2000 Contributed Papers 1580, Econometric Society.
  30. John, Kose & Williams, Joseph, 1985. " Dividends, Dilution, and Taxes: A Signalling Equilibrium," Journal of Finance, American Finance Association, vol. 40(4), pages 1053-70, September.
  31. Kathryn L. Dewenter & Vincent A. Warther, 1998. "Dividends, Asymmetric Information, and Agency Conflicts: Evidence from a Comparison of the Dividend Policies of Japanese and U.S. Firms," Journal of Finance, American Finance Association, vol. 53(3), pages 879-904, 06.
  32. Mike Burkart & Denis Gromb & Fausto Panunzi, 2000. "Agency Conflicts in Public and Negotiated Transfers of Corporate Control," Journal of Finance, American Finance Association, vol. 55(2), pages 647-677, 04.
  33. Dhaliwal, Dan S. & Erickson, Merle & Trezevant, Robert, 1999. "A Test of the Theory of Tax Clienteles for Dividend Policies," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 179-94, June.
  34. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2004. "Dividend Policy, Agency Costs, and Earned Equity," Working Paper Series 2004-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  35. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Agency Problems and Dividend Policies Around the World," Harvard Institute of Economic Research Working Papers 1839, Harvard - Institute of Economic Research.
  36. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  37. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
  38. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
  39. Franklin Allen & Antonio Bernardo & Ivo Welch, 1998. "A Theory of Dividends Based on Tax Clienteles," Yale School of Management Working Papers ysm92, Yale School of Management.
  40. Hines, James R, Jr, 1996. " Dividends and Profits: Some Unsubtle Foreign Influences," Journal of Finance, American Finance Association, vol. 51(2), pages 661-89, June.
  41. Jan Svejnar & Miroslav Singer, 1994. "Using vouchers to privatize an economy: the Czech and Slovak case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 43-69, 03.
  42. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
  43. Amihud, Yakov & Murgia, Maurizio, 1997. " Dividends, Taxes, and Signaling: Evidence from Germany," Journal of Finance, American Finance Association, vol. 52(1), pages 397-408, March.
  44. Zwiebel, Jeffrey, 1996. "Dynamic Capital Structure under Managerial Entrenchment," American Economic Review, American Economic Association, vol. 86(5), pages 1197-1215, December.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:24510. 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: (LSERO Manager)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.