Agency Conflicts and Corporate Payout Policies: A Global Study

We investigate the roles of firm and country level agency conflicts in determining corporate payout policies. Based on a large sample of 29,610 firms in 43 countries from 2001 to 2006, we find that in high protection countries, investors are able to use their legal powers to extract cash from firms but their ability to do so can be substantially hindered when agency costs at the firm level are high. In poor protection countries, investors can seek refuge in firm level governance mechanisms to curb agency conflicts, suggesting a substitution between country and firm level investor protection. Finally, compared to repurchases, we find dividends are more likely to be the sole method of payout in high protection countries and in less closely held firms.