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Control Structures and Payout Policy

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  • Renneboog, L.D.R.

    (Tilburg University, Center For Economic Research)

  • Trojanowski, G.

    (Tilburg University, Center For Economic Research)

Abstract

This paper examines the payout policies of UK firms listed on the London Stock Exchange during the 1990s.It complements the existing literature by analyzing the trends in both dividends and total payouts (including share repurchases).In a dynamic panel data regression setting, we relate target payout ratios to control structure variables.Profitability drives payout decisions of the UK companies, but the presence of strong block holders or block holder coalitions considerably weakens the relationship between corporate earnings and payout dynamics.While the impact of the voting power of shareholders coalitions on payout ratios is found to be always negative, the magnitude of this effect differs across different categories of block holders (i.e. industrial firms, outside individuals, directors, financial institutions).The controlling shareholders appear to trade off the agency problems of free cash flow against the risk of underinvestment, and try to enforce payout policies that optimally balance these two costs.Finally, the paper improves upon some methodological flaws of the recent empirical studies of payout policy.

Suggested Citation

  • Renneboog, L.D.R. & Trojanowski, G., 2005. "Control Structures and Payout Policy," Discussion Paper 2005-61, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:4f19c697-4a33-4213-84aa-aad0aea4a366
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    Cited by:

    1. 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.
    2. repec:nax:conyad:v:62:y:2017:i:4:p:1183-1198 is not listed on IDEAS
    3. Mobeen Ur Rehman & Aabid Hussain, 2013. "Impact of Dividend Policy on Performance of Firms Having Stocks Listed In an Emerging Stock Market," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(1), pages 20-29, January.
    4. Jianan Guo, 2016. "Ultimate Controlling Shareholders and Dividend Payout Policy in Chinese Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-35, June.
    5. Byrne, Julie & O’Connor, Thomas, 2012. "Creditor rights and the outcome model of dividends," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 227-242.
    6. Mehdi Nekhili & Afifa Wali Siala & Dhikra Chebbi-Nehkili, 2009. "Free Cash Flow, gouvernance et politique financière des entreprises françaises," Revue Finance Contrôle Stratégie, revues.org, vol. 12(1), pages 5-31, March.
    7. Engsted, Tom & Pedersen, Thomas Q., 2010. "The dividend-price ratio does predict dividend growth: International evidence," Journal of Empirical Finance, Elsevier, vol. 17(4), pages 585-605, September.
    8. P. Du Jardin & E. Séverin, 2011. "Dividend policy," Post-Print hal-00801923, HAL.
    9. repec:eee:finlet:v:24:y:2018:i:c:p:291-300 is not listed on IDEAS
    10. 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.
    11. Geiler, Philipp & Renneboog, Luc, 2015. "Taxes, earnings payout, and payout channel choice," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 37(C), pages 178-203.
    12. Duha Al-Kuwari, 2012. "Are Large Shareholders Conducting Influential Monitoring in Emerging Markets? An Investigation into the Impact of Large Shareholders on Dividend Decisions: The Case of Kuwait," Research in World Economy, Research in World Economy, Sciedu Press, vol. 3(2), pages 52-67, September.
    13. Truong, Thanh & Heaney, Richard, 2007. "Largest shareholder and dividend policy around the world," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(5), pages 667-687, December.
    14. Kimie Harada & Pascal Nguyen, 2011. "Ownership concentration and dividend policy in Japan," Managerial Finance, Emerald Group Publishing, vol. 37(4), pages 362-379, March.
    15. Faris Nasif AL- SHUBIRI & Ghassan AL TALEB & Abd AL – Naser AL- ZOUED, 2012. "The Relationship between Ownership Structure and Dividend Policy: An Empirical Investigation," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(4), pages 644-657, October.
    16. Andrew Benito & Garry Young, 2007. "Financial Pressure and Balance Sheet Adjustment by Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(5), pages 581-602, October.
    17. repec:eco:journ1:2018-02-20 is not listed on IDEAS
    18. repec:nax:conyad:v:62:y:2017:i:4:p:1199-1213 is not listed on IDEAS
    19. Fodil Adjaoud & Walid Ben-Amar, 2010. "Corporate Governance and Dividend Policy: Shareholders' Protection or Expropriation?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5-6), pages 648-667.
    20. 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.
    21. repec:hur:ijarbs:v:8:y:2018:i:4:p:325-350 is not listed on IDEAS
    22. Thomas O'Connor & Julie Byrne, 2012. "Shareholder and creditor legal rights and the outcome model of dividends," Economics, Finance and Accounting Department Working Paper Series n225-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    23. Andres, Christian & Betzer, André & Goergen, Marc & Renneboog, Luc, 2009. "Dividend policy of German firms: A panel data analysis of partial adjustment models," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 175-187, March.

    More about this item

    Keywords

    Payout policy; dividend payout; share repurchases; partial adjustment; ownership and control; voting power; Banzhaf power indices; corporate governance; free cash flow; pecking order;

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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